Central Banks Meetings – FOMC, ECB, BOE, BOJ, RBA, RBNZ, SNB
The previous article showed the importance of the economic calendar and why traders should be on heightened alert when news is being released. If you check all the economic calendar news to be released in a month, the ones marked with red color are the ones that will move market the most. Having said that, it should be mentioned here that the economic calendar is not displaying only economic news, but also economic events. They are mostly marked with the red color as well, and the relevant ones are the central banks’ meetings.
Most Important Central Banks
Central banks are analyzing the economic data in a region to see how the economy is doing. Based on this, the central banks are setting the monetary policy for the period to come. As a rule of thumb, when an economy is expanding, or growing, a central bank will start a tightening cycle. The opposite is true as well: when an economy is shrinking, the monetary policy will ease. For the Forex market, the following are the most important central banks to consider:
– Federal Reserve of the United States (FED);
– European Central Bank (ECB);
– Bank of England (BOE);
– Bank of Japan (BOJ);
– Reserve Bank of Australia (RBA);
– Reserve Bank of New Zealand (RBNZ);
– Swiss National Bank (SNB).
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If you combine the currencies these central banks represent, the currency pairs list appears. In other words, knowing when these central banks are meeting to set the monetary policy is key for trading that respective currency. The reason why central bank meetings and monetary policies are so important is that central banks set the interest rate for their respective currencies. This is what makes the Forex market moving!
Federal Open Market Committee (FOMC)
The Federal Reserve of the United States is the most important central bank in the world as it governs over the world’s reserve currency: the U.S. dollar. The Fed is meeting every six weeks to analyze the economy and set the interest rate for the period ahead. The meeting is called the Federal Open Market Committee (FOMC) and the outcome of it is the FOMC Statement. This is a document that is released on a Wednesday, every six weeks, and market participants are eagerly waiting to see how the dollar will move. Every two or three meetings, the Fed is holding a press conference to explain the reasoning for the monetary policy decision and offer other details to press representatives. Volatility is elevated during these press conferences. Detailed info here…
European Central Bank (ECB)
The ECB is meeting every six weeks as well, on a Thursday, and every meeting is being followed by a press conference. During the press conference, the President of the ECB is reading the monetary policy statement and the second half of the press conference is dedicated to questions and answers. The actual interest rate is released forty-five minutes before the press conference, and it is mostly a non-event if the interest rate is not a surprise. If the ECB is moving on rates, expect the Euro pairs to move aggressively. The Euro is traveling aggressively during the ECB press conference as the Eurozone economy is one of the biggest in the world. This means that not only the Euro currency pairs will move, but volatility, in general, will be on the rise. Detailed info here…
Bank of England (BOE)
Bank of England is meeting every six weeks as well and the MPC (Monetary Policy Committee) is releasing the interest rate decision on a Thursday. What is interesting to know about the MPC meetings is that there is no press conference scheduled if there is no change in the interest rate value. After the 2008 financial crisis, all the major central banks in the world cut the rates to accommodate the new situation. Bank of England did too, and from that moment on there was no change on interest rate levels until the Brexit vote happened, hence no press conferences. To compensate that, and to make sure there’s a proper communication with market participants, BOE is using the Inflation Letter press conference for that. It is just a small trick to basically do the same thing like the Fed and ECB. Detailed info here…
Bank of Japan (BOJ)
Bank of Japan made the headlines in the last years as it was the first one to open the Pandora box: that is, the quantitative easing program first started in Japan. Under such a program, the central bank is buying the bonds of their government with the intent to offer the economy a stimulus. This practice has been embraced by the rest of the major central banks, like FED, BOE, ECB, SNB, but so far it failed to work in Japan. The idea is to see inflation picking up, but the CPI (Consumer Price Index) in Japan is still missing the target. Anyways, BOJ is meeting every six weeks as well and this is one of the few times when the Asian session is animated. Normally, the Asian session is quite a ranging one. Detailed info here…
Reserve Bank of Australia (RBA)
RBA is meeting monthly, on a Tuesday, typically the fist Tuesday in the month. The monetary policy statement is not released on the same day, and this makes the interest rate decision announcement to be a tricky one. Imagine that you may see an interest rate change at the announcement date, only for the monetary policy statement later to show that it was a singular case. Bulls and bears will be screwed due to this. Detailed info here…
Reserve Bank of New Zealand (RBNZ)
The RBNZ is following FED path in the sense that the monetary policy and the stance of the economy are reviewed every six weeks. However, there is a trick to this interest rate announcement! The problem comes from the fact that the release is on a Wednesday, which is typically falling on the same Wednesday like the FED decision. Because of the time zone difference, the RBNZ decision is following one hour after the FED decision. Because the FED decision is more important for the global trade due to the world’s reserve status of the dollar, the RBNZ is typically overshadowed by the FED meeting’s importance.
Swiss National Bank (SNB)
The Swiss National Bank is one of the most controversial central banks in the world. The SNB is constantly intervening in the market to weaken the CHF (Swiss Franc) and it is not hiding this fact. The monetary policy meetings are not that important for the market, but what usually makes a headline is the central bank decisions to intervene in the market. Look no further to the EURCHF 1.20 floor dropping in January 2015, and you’ll have a pretty good picture of what the SNB is capable of. Detailed info here…
Other educational materials
Recommended further readings
- “Accountability of central banks: aspects and quantification.” De Haan, Jakob, Fabian Amtenbrink, and Sylvester CW Eijffinger. Banca Nazionale del Lavoro Quarterly Review 52, no. 209 (1999): 169.
- How central banks take decisions: An analysis of monetary policy meetings. Maier P. Challenges in central banking. 2010 Apr 12:320-56.