Most Important Central Banks Meetings
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 items marked with red colour are the ones that will move the market the most. Having said that, it should be mentioned here that the economic calendar not only displays economic news, but also economic events. They are mostly marked with a red colour as well, and the relevant ones are the central bank meetings.
Most Important Central Banks
Central banks constantly analyse the economic data in a region to see how the economy is doing. Based on this, the central banks set the monetary policy for the period to come. As a rule of thumb, when an economy is either 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 Austalia (RBA)
- Reserve Bank of New Zealand (RBNZ)
- Swiss National Bank (SNB).
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 keeps the Forex market moving!
Federal Open Market Committee (FOMC)
The Federal Reserve (“Fed”) of the United States is the most important central bank in the world, as it governs the world’s reserve currency, the US Dollar. The Fed meets every 6 weeks to analyse the economy and set the interest rate for the period ahead. This 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 6 weeks, and in the run-up to it market participants eagerly wait to see how the dollar will move. Every two or three meetings, the Fed holds a press conference to explain the reasoning for the monetary policy decision, and offer other details to press representatives. Volatility is elevated during the time of these press conferences. Detailed info here…
European Central Bank (ECB)
The ECB meets also every 6 weeks, on a Thursday, and every meeting is being followed by a press conference. During the press conference, the president of the ECB reads the monetary policy statement, and the second half of the press conference is dedicated to questions and answers. The actual interest rate is released 45 minutes before the press conference, and it is usually a non-event if the interest rate is not a surprise. If the ECB is moving on rates, you can expect the Euro pairs to move aggressively. The Euro travels aggressively during the ECB press conference, as the Eurozone economy is one of the biggest in the world. This means that not only will the Euro currency pairs move, but volatility, in general, will be on the rise. Detailed info here…
Bank of England (BOE)
The Bank of England meets every 6 weeks as well, and the Monetary Policy Committee (MPC) releases 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 their rates to accommodate the new situation. The Bank of England did too, and from that moment on there was no change in interest rate levels until the Brexit vote happened, and hence no press conferences. To compensate for that, and to make sure there is proper communication with market participants, the BOE uses the Inflation Letter press conference for that. It is just a small trick to basically do the same thing as the Fed and ECB. Detailed info here…
Bank of Japan (BOJ)
The Bank of Japan made the headlines in recent years as it was the first one to open the Pandora’s box of the Quantitative Easing Programme, which started in Japan. Under such a programme, the central bank buys the bonds of their government with the intent of offering a stimulus to the economy . This practice has been embraced by the rest of the major central banks, such as the FED, BOE, ECB, and SNB, but so far it has failed to work in Japan. The idea is to see inflation picking up, but the Consumer Price Index (CPI) in Japan is still missing the target. In any case, the BOJ meets every 6 weeks as well, and this is one of the few times when the Asian session is animated. Normally, the Asian session is quite a wide-ranging one. Detailed info here…
Reserve Bank of Australia (RBA)
The RBA meets monthly on a Tuesday, typically the first Tuesday in the month. The monetary policy statement is not released on the same day, and this makes the interest rate decision announcement a tricky one. Imagine that you may see an interest rate change on the announcement date, only for the monetary policy statement later to show that it was a singular case. Bulls and bears will be badly affected as a result of to this. Detailed info here…
Reserve Bank of New Zealand (RBNZ)
The RBNZ follows the FED path in the sense that the monetary policy and the status of the economy are reviewed every 6 weeks. However, there is a twist to this interest rate announcement! The problem comes from the fact that the release is on a Wednesday, which typically falls on the same Wednesday as the FED decision. Because of the time-zone difference, the RBNZ decision follows 1 hour after the FED decision. Because the FED decision is more important for global trade due to the world’s reserve status of the Dollar, the RBNZ meeting 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 constantly intervenes in the market to weaken the CHF (Swiss Franc), and it does not hide this fact. The monetary policy meetings are not that important for the market, but what usually makes a headline is the central bank’s decision to intervene in the market. You need look no further than the EUR/CHF 1.20 floor dropping in January 2015 to get a pretty good picture of what the SNB is capable of. Detailed info here…
Other educational materials
Recommended further reading
- “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.