ForexLive has changed its name to investingLive to provide quick and reliable news and expert analysis on a broader range of financial markets. This name change reflects the platform’s new focus, now covering stocks, commodities, cryptocurrencies, and more. InvestingLive builds on ForexLive’s ten years of delivering real-time updates in the forex market. The global team of analysts has not changed, ensuring that the speed and clarity of information remains consistent. With the rebrand, several updates have been made, including a new URL that redirects from ForexLive.com to investingLive.com. There is also a fresh brand identity and a redesigned website. New features include a user-friendly interface with better navigation, faster loading times, enhanced tools, and expanded content for deeper market insights. While the brand and platform have evolved, the commitment to providing trusted market news and analysis continues. The focus is on delivering quality coverage across major financial markets, maintaining the clear and sharp voice that users expect. For more details about the change from ForexLive to investingLive, users can visit the FAQ section or check out the content on investingLive’s YouTube channel. This shift from a forex-focused platform highlights a key truth for traders: markets are now more interconnected than ever. A change in one asset class can affect others. We believe derivative traders need to expand their analysis beyond their primary asset. This interconnectedness was evident after the U.S. Consumer Price Index report for October revealed that inflation dropped to 3.2%. The news caused stocks to rise, bond yields to fall, and the U.S. dollar to decline. A trader holding options on any of these assets had to monitor the macro data influencing them all. We see similar patterns in volatility markets. The CBOE Volatility Index (VIX) recently fell below 14, suggesting less fear in equities. However, this calm can be misleading. Options traders should hedge against complacency, especially given ongoing geopolitical risks and changing central bank policies. A low VIX presents an opportunity to buy protection cheaply, not a reason to overlook cross-asset risks. Historical correlations that traders relied on are becoming less reliable. For decades, bonds acted as a hedge for stocks, but during the high-inflation environment of 2022, both fell together. Derivative strategies based on these past assumptions need re-evaluation for today’s market conditions. As Mr. Button noted, our focus is now broader across various financial markets. In practical terms, an options trader keeping an eye on NVIDIA stock should also consider U.S.-China trade relations. Similarly, a commodity trader looking at oil prices should track the dollar’s strength. For example, the recent drop in WTI crude prices below $75 a barrel is influenced as much by global growth concerns as by supply levels. Mr. Papageorgiou reiterated that our team has long covered these macro trends, and this evolution simply gives it a name. The takeaway for derivative traders is to utilize contracts that reflect these broader themes, rather than just looking at isolated price movements. This might involve using currency options to protect an international equity portfolio or using commodity derivatives to speculate on inflation trends.

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ForexLive has changed its name to InvestingLive to show that it now covers more than just forex. This rebranding comes from listening to the trading and investing community’s needs. While the name is new, the fast news coverage you trust remains unchanged. InvestingLive will also include more topics like stocks, crypto, and commodities. Current users don’t need to worry about their accounts. All settings and alerts will automatically transition to the new platform. The URL forexlive.com will redirect to InvestingLive, ensuring a smooth changeover. New contributors will bring fresh ideas and expertise while keeping the high standards you expect.

Long-Term and Short-Term Investment Themes

The rebranding introduces both long-term investing themes and short-term updates. Ownership and management stay the same, with the goal of expanding content and being transparent. This change signals the start of a growth strategy, adding diverse content and products to strengthen our identity. This shift from a forex-focused platform to a broader one shows how connected the markets have become. The old way of trading assets separately is fading. Now, we need to pay attention to how surprises in one sector, like technology stocks, can cause shifts in another, such as currency markets. Our strategies need to adapt to this new world of interconnected volatility. For instance, the Cboe Volatility Index (VIX), which measures fear in the stock market, has been relatively low lately, ranging around 13-15. However, history shows that sudden spikes in the VIX often lead to bigger moves in currency pairs like USD/JPY. This means that traders focused on the S&P 500 and those in FX futures are now monitoring the same risks.

Focus on Commodities and Cross-Asset Opportunities

The new platform emphasizes commodities, suggesting there are cross-asset opportunities to explore. For example, any derivative strategy on the Australian dollar should include the analysis of iron ore and gold prices, since Australia exports both. Moreover, with WTI crude oil prices fluctuating between $75 and $85 per barrel this year, options trading related to the Canadian dollar is important, as it closely correlates with energy markets. We must also recognize the addition of crypto as a key sign of changing market dynamics. With the total cryptocurrency market cap around $2.2 trillion, a sudden decline in digital assets can cause risk-off sentiment that impacts traditional forex pairs and indexes. Ignoring movements in such a significant asset class is no longer an option. Thus, we should use derivatives not only for speculation within a single asset class but also for developing strategies that hedge across different classes. This expansion confirms that multi-asset analysis is now essential for navigating the markets. We can effectively use options on currency pairs to protect equity index positions, especially when our primary news source covers all these areas. Create your live VT Markets account and start trading now.

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Eurostoxx futures are down 0.3% in early European trading, reflecting a weak market mood after last week’s lackluster close. German DAX futures also fell by 0.3%, while UK FTSE futures decreased by 0.1%. This week, all eyes are on US-EU trade talks that could affect market dynamics. Key tech earnings, including reports from Google/Alphabet and Tesla, are expected later in the week. In contrast to Europe, US futures are showing a stable trend, currently up by 0.1%.

European Market Outlook

The weak start in European markets indicates that caution is necessary. Recent data, like Germany’s IFO Business Climate index dropping to 87.3, supports this negative outlook for the region. It’s wise to think about buying put options on the Eurostoxx 50 to protect against further declines in the coming days. In the US, the steadier performance offers traders a chance to take advantage. However, the upcoming trade negotiations, impacting over $1 trillion in annual trade, bring added uncertainty. We recommend pair trades, such as buying S&P 500 futures while selling DAX futures, to benefit from this relative strength.

Volatility and Market Strategies

The CBOE Volatility Index is hovering around 14, indicating a sense of complacency in the market given the upcoming risks. Historically, low volatility levels before major earnings can lead to sharp and unexpected price changes. We advise buying VIX call options or straddles on key tech stocks to profit from a potential surge in volatility, no matter the direction. The positions of central bankers like Powell and Lagarde are still crucial for the market. While they both focus on inflation, recent comments suggest the Federal Reserve may be nearing a pause in rate hikes, unlike the European Central Bank. This policy difference supports our view of US markets outperforming in the near term. Tech earnings will be a major influence, especially looking at Alphabet’s cloud revenue and Tesla’s vehicle margins after recent price cuts. Although implied volatility for these options is high, historical earnings-day moves of over 5% could make strategies like long strangles lucrative. We are preparing for a significant price change in either direction for these stocks. Create your live VT Markets account and start trading now.

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This week, the FX market has a light schedule for economic events, starting with a quiet Monday. On Tuesday, we’ll see minutes from Australia’s monetary policy meeting and comments from Bank of England Governor Andrew Bailey. In the U.S., Federal Reserve Chair Jerome Powell will open a conference, with a blackout period starting for the Fed ahead of the July 30 FOMC meeting. Wednesday will bring data on existing home sales in the U.S., while Thursday will showcase flash services and manufacturing PMIs for Japan, the eurozone, the U.K., and the U.S.

Eurozone Economic Events

The eurozone will announce its latest ECB monetary policy decision. On Friday, Japan’s Tokyo core CPI (year-on-year) will be released, along with the U.K.’s retail sales (month-on-month) and the U.S.’s durable goods orders (month-on-month). Existing home sales in the U.S. are expected to dip slightly in June, while new home sales may bounce back. The ECB is likely to keep the deposit rate at 2.0%, with Wells Fargo predicting a possible rate cut in the future. The consensus for Tokyo’s core CPI (year-on-year) stands at 3.0%. Although food prices are easing, inflationary pressures remain. In the U.S., durable goods orders are expected to drop significantly in June, largely due to a previous spike in aircraft orders. However, core durable goods orders may stay flat, and business equipment investment could shrink later in the year. With a light economic calendar, we expect low implied volatility early in the week, making it a good time to set up positions rather than chase trends. While Mr. Powell enters his blackout period, his comments on financial stability could still lead to unexpected market movements. We will monitor options pricing closely for traders anticipating surprises from his speech.

U.S. Economy and Federal Reserve Insight

We expect Wednesday’s existing home sales data to confirm a slowing U.S. economy due to high interest rates. Recent numbers show the 30-year fixed mortgage rate remains high, around 6.89% in early July, supporting the idea of a slight dip in sales. This continuing weakness in housing suggests that the Federal Reserve may feel pressured to consider rate cuts later this year, which we can express through interest rate futures. The anticipated sharp decline in durable goods orders on Friday will be crucial for us. We’ll focus less on the large headline number, which is skewed by a big Boeing deal in May, and more on the core figure for insights into business investment. A weak core reading could mean companies are cutting back on spending, creating potential selling pressure on industrial sector stocks and related assets. For the euro, we believe the ECB’s decision to hold rates will stabilize the situation in the short term. However, the possibility of future rate cuts, combined with ongoing U.S. tariffs, poses risks for the currency in the medium term. This makes longer-dated put options on the EUR/USD a sensible strategy to hedge against potential challenges. Friday’s inflation data from Tokyo will be crucial for the Japanese yen. A higher-than-expected reading could shake the market’s belief that the central bank will delay policy changes, likely strengthening the currency rapidly. With the USD/JPY recently at multi-decade highs near 160, we are prepared for significant volatility around this announcement. For the British pound and Australian dollar, we’ll focus on subtle changes in forward guidance rather than major data points. Comments from Governor Bailey and the release of Australia’s monetary policy minutes could signal shifts in policymakers’ tones. We will analyze their language closely for signs that either central bank is moving closer to or further from future rate changes. Create your live VT Markets account and start trading now.

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Japan’s Prime Minister, Shigeru Ishiba, wants to talk with former US President Donald Trump about trade issues. This comes after a recent election loss, which has made it crucial for Ishiba to secure a tariff agreement with the US while protecting Japan’s interests. Ishiba stressed the need to stay in office to deal with tariff discussions, rising inflation, and economic hurdles. He has no plans to change his team or expand his government coalition but aims to work with other parties to tackle increasing prices.

Election Challenges

Despite his objectives, Ishiba’s authority has taken a hit from the election results. As a result, Japan may struggle to meet the August 1 deadline for tariff negotiations in this difficult environment. Ishiba’s weakened position raises worries about market stability. The uncertainty around his negotiation skills before the August 1 deadline poses a major risk. Traders should prepare for significant fluctuations in Japanese assets, especially since core inflation reached a two-year high of 2.5% in May, adding to economic stress. The Japanese Yen is especially sensitive to this political instability and the trade talks ahead. There is a high chance that the USD/JPY currency pair might approach its recent 38-year high near 161. Traders could think about buying call options on USD/JPY to profit from or protect against further Yen declines.

Effect on Japanese Stock Market

The current situation poses challenges for the Japanese stock market, particularly for major exporters. If Ishiba fails to secure a good deal, it could directly harm corporate profits, putting the Nikkei 225 at risk of falling. We recommend that traders consider buying put options on the index to prepare for negative results from the tariff discussions. Past trade disputes from 2018-2019 showed that markets react strongly to negotiation news, with the Nikkei facing several single-day losses of over 2%. A similar volatile pattern is expected now, making strategies that profit from significant price changes in either direction—like long straddles—appealing. Ishiba’s wish to collaborate with other parties without expanding his coalition indicates a fragile government, likely leading to legislative deadlock and further unsettling investors. Create your live VT Markets account and start trading now.

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The FX option expiries for July 21 at 10am New York time highlight a few key items. The main focus is on the EUR/USD pair at the 1.1600 and 1.1640 levels, which surround the 100-hour moving average at 1.1623. Right now, the pair is influenced by important hourly moving averages. The expiries are likely to limit price movements during European trading.

Technical Indicators Impact

The 200-hour moving average, at 1.1660, serves as a ceiling, restricting upward movement last Friday. For more information on using this data, additional resources are available online. Large option expiries often act like magnets for currency prices, reducing short-term movement as the market gravitates toward these levels. According to Low’s analysis, these technical points can shape the day’s trading range. This “pinning” effect is a pattern to monitor around significant psychological levels in the coming weeks. The 1.1600 level mentioned earlier is now in the past, with EUR/USD currently trading around 1.0730. Recent data shows important option barriers at 1.0700 and 1.0800, likely establishing new boundaries for price movement. These levels reflect new economic data indicating US core inflation is steady at 3.6%, while Eurozone growth forecasts have been lowered to 0.8% for the year.

Central Bank Policies Influence

The notable drop from the price points discussed shows a long-term trend influenced by different central bank policies. This trend is expected to continue since the Federal Reserve is indicating fewer rate cuts compared to the European Central Bank. As a result, we’ll be using derivative strategies that benefit if the pair stays within this new, lower range. With the market’s one-month implied volatility for EUR/USD near yearly lows of about 5.5%, option premiums are low. This situation offers a chance for us to establish positions that profit from a sudden increase in volatility. We plan to buy strangles—options strategies using both puts and calls—to prepare for a breakout ahead of upcoming central bank press conferences. Create your live VT Markets account and start trading now.

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Japan’s ruling coalition has lost its majority in the upper house of parliament for the first time since 1955. They secured only 47 seats, falling short of the 50 needed. This situation creates significant challenges for Prime Minister Ishiba, who is now under increased scrutiny and pressure to keep his position. Initially, the Japanese yen rose but then lost some of its gains, indicating worries about political risks. In the bond market, 30-year JGB yields remain above 3% due to fiscal concerns mixed with political uncertainty. After losing control of the lower house in October, Ishiba’s influence over policy in Tokyo has weakened.

Impact on Trade Negotiations

This political change raises doubts about Japan’s tariff negotiations with the United States. Despite the challenges, Ishiba is likely to stay in office until the trade talks’ deadline on August 1. However, his weakened government may struggle to win lawmakers’ backing for any agreement, particularly if changes are made at the last minute. There is a growing chance that Japan could face 25% tariffs starting August 1. Ishiba’s shaky position and the threat of a sudden leadership vote could complicate negotiations with the U.S. during this period. For the latest updates, visit investingLive. Given the government’s weakened state, traders should prepare for increased market volatility as the August 1 tariff deadline approaches. Political gridlock makes it tough for Ishiba to negotiate a favorable deal, raising the likelihood of new U.S. tariffs, which creates opportunities for savvy investors.

Implications for Markets

The most immediate effects will be seen in Japanese stocks, particularly in export-heavy industries like automobiles. With Japanese automakers selling nearly 4 million vehicles in the U.S. last year, a 25% tariff could significantly harm their profits and stock values. We recommend buying put options on the Nikkei 225 index to protect against this possibility. The ongoing political struggles are likely to weigh on the yen. Although the yen is usually a safe haven during global crises, past domestic upheavals—like those after previous leadership changes—often lead to yen weakness. This suggests that holding long positions in USD/JPY derivatives could be beneficial as faith in the government declines. This uncertainty creates a trading opportunity, which is already visible in the market. The Nikkei Volatility Index has risen over 15% this past month, as investors factor in the increasing political risks. Purchasing call options on volatility is a strategic move to capitalize on the expected market upheaval as the tariff deadline approaches. The deadlock in Tokyo also makes Japan’s fiscal challenges harder to solve, raising concerns in the bond market. The political impasse makes significant fiscal reform unlikely, keeping borrowing costs high. Therefore, shorting Japanese Government Bond futures is a sensible strategy amidst the ongoing gridlock. Create your live VT Markets account and start trading now.

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On July 9, 2025, Bank Negara Malaysia (BNM) made a move that wasn’t exactly surprising, but it still caught attention.

For the first time since May 2023, BNM slashed the Overnight Policy Rate (OPR) by 25 basis points to 2.75%. BNM’s Governor, Datuk Seri Abdul Rasheed Ghaffour, said the move was pre-emptive to keep Malaysia’s growth engine humming in uncertain global conditions.

If you’re following financial news, revisions to a country’s interest rates from all around the world pop up all the time. But here’s the thing: interest rates are just one tool in the central bank’s arsenal.

So, what exactly is a central bank? Why does it matter? And how does it shape the financial world that retail traders live in every day?

Let’s break it all down.

What Is A Central Bank?

Think of the central bank as the engine room of a country’s financial system.

It sits at the top of the monetary food chain, playing the roles of a regulator, enforcer, researcher, and the ultimate source of a safety net. It’s the one institution that can issue money, steer inflation, and rescue banks in distress.

And if it wants to, a central bank could throw the market into a tailspin with a single sentence.

When it works well, most people barely notice it.

But when it doesn’t, everyone feels it!

A (Very) Brief History Of Central Banks

Central banks have been around longer than most people realise.

The earliest versions showed up in 17th-century Europe. Sweden’s Riksbank, founded in 1668, holds the title of the oldest central bank.

But it was the Bank of England, established in 1694, that defined what a central bank could be: managing debt, stabilising the economy, and eventually taking charge of interest rates and money supply.

Fast-forward a few centuries, and central banks became less about financing wars and more about smoothing out booms and busts. The 20th century, especially post-Great Depression, is where modern central banking took shape.

Institutions like the US Federal Reserve (established in 1913) started intervening more actively, tweaking interest rates, printing money, and setting monetary policy to avoid collapses.

Today, almost every major country has one, and their influence stretches far beyond national borders.

Responsibilities Of A Central Bank

Central banks aren’t just about interest rates. Their responsibilities touch almost every part of the financial system. Here’s what they do, and why it matters to traders like you.

Guiding The Economy With Monetary Policy

This is the central bank’s most well-known job. By adjusting policy rates (like Malaysia’s OPR or the US Fed’s funds rate), they influence how cheap or expensive it is to borrow money.

Lower rates fuel spending and investment. Higher rates cool things down to fight inflation. It’s a balancing act of growth vs. stability.

Acting As The System’s Referee

Banks don’t police themselves. But central banks do. They supervise the financial sector, making sure commercial banks aren’t taking reckless risks that could spiral into a crisis.

Capital requirements, liquidity rules, stress tests: these all come from the central bank’s regulatory playbook.

Printing And Controlling Money

Central banks issue a country’s legal tender. That doesn’t just mean printing notes. It means deciding how much money should exist in the economy.

If there’s too much, you risk inflation. Too little, and the economy stalls. They also fight counterfeiting and ensure the currency remains trusted.

Managing The Country’s Currency Reserves

Central banks hold reserves in foreign currencies. Think USD, EUR, CAD, which they use to stabilise the domestic currency when volatility strikes. These reserves are also crucial for international trade, debt payments, and economic diplomacy.

Being The Lender Of Last Resort

When commercial banks run into liquidity issues (like what happened in the 2008 crisis), central banks step in. They provide emergency funding, usually in exchange for collateral, to keep credit flowing and prevent systemic collapse.

It’s the ultimate financial safety net.

Providing Research And Guidance

Don’t sleep on how much research central banks produce.

They’ve got teams of economists tracking inflation trends, wage data, employment shifts, and geopolitical risks. This information shapes their policy decisions.

Markets watch central bank reports like hawks, and traders price in every word.

The Relationship (Or Lack Thereof) Between Central Banks And Politics

Central banks are often designed to be independent for a reason – to shield monetary policy from short-term political agendas. But that doesn’t mean they’re immune to pressure.

Two recent examples show how political interference can shake market confidence. And sometimes, wreck entire economies.

1. Trump Vs. The Fed

It’s a power play drama that has been dominating headlines since Trump took command of the Oval Office in 2017.

Trump regularly slammed the Federal Reserve and its chairman, Jerome Powell, for not cutting rates fast enough. At one point, Trump even floated the idea of firing Powell, which sparked fears about the Fed’s autonomy.

When politicians pressure central banks like this, investors start to wonder:

Are we still playing by the rules? Or are the rules changing?

That uncertainty alone can hurt market stability.

2. Erdogan’s Monetary Experiment

In Turkey, things went even further.

President Recep Tayyip Erdoğan believes high interest rates cause inflation. It’s an idea that goes against basic economic theory.

He pressured the Central Bank of the Republic of Turkey to slash rates repeatedly, even as inflation surged.

A deputy governor at Turkey’s central bank delivers a rare public rebuke of years of unorthodox monetary policy under President Erdogan https://t.co/aDVOTUfVn9

— Bloomberg Middle East (@middleeast) February 8, 2024

He fired central bank governors who didn’t fall in line.

The result? A full-blown currency crisis.

The Turkish lira tanked, inflation exploded, and investors pulled out. It’s a case study in why central bank independence isn’t just academic.

It’s essential for market trust.

Why Political Independence Matters For Central Banks

Here’s something traders often underestimate until it’s too late: a central bank’s independence isn’t just a legal technicality. It’s the firewall between stable economies and political chaos.

Avoiding Political Manipulation

Let’s say politicians had full control over monetary policy. What do you think they’d do before an election?

Jack up spending, slash rates, and flood the economy with cash to boost short-term growth. Great for headlines. Terrible for inflation.

That’s why central banks need to maintain a distance from political agendas. To stop monetary policy from becoming a campaign tool. Independence helps them say ‘no’ when everyone else is saying ‘go.’

Credibility In Controlling Inflation

A central bank that isn’t answering to political masters can stay focused on long-term stability. That builds credibility, which is everything.

If markets believe a central bank will do whatever it takes to keep inflation under control, people adjust their expectations. Inflation stays anchored. Currencies stay stronger. Rate hikes become more effective.

It’s a feedback loop that only works if the institution’s decisions are trusted.

Operational Autonomy

There’s also the operational angle.

Independent central banks don’t need to wait for parliament or congress to sign off on rate hikes or bond-buying. They move fast. They choose their tools. They act based on data, not politics.

That kind of agility has saved economies more than once.

Legal And Institutional Safeguards

Most central banks are protected by legislation that gives their leaders fixed terms and outlines their autonomy. It’s not just tradition. It’s the law.

These rules are designed to prevent meddling and to preserve policy decisions that are rooted in macroeconomic fundamentals, not political convenience.

In short? When a central bank stays in its lane, markets can focus on signals, not noise. When it doesn’t, chaos tends to follow.

How Central Banks Move The Forex Market

If you trade forex, you’re essentially trading central bank expectations.

Their decisions (and even hints about decisions) can make or break a currency. Here’s how:

Interest Rates Drive Demand

Higher interest rates attract capital. Investors want yield, and if one country offers higher returns than another, its currency will strengthen.

That’s why currencies like the USD, when paired with strong rate policy, often surge. Cut rates too low, and the opposite happens.

Managing Currency Reserves

Central banks hold reserves in foreign currencies, and they use them.

Let’s say a currency is getting too strong and hurting exports. The central bank might sell its own currency and buy foreign ones, increasing supply and weakening it.

Or vice versa. If they want to prop it up, they’ll buy their own currency using foreign reserves.

Quantitative Easing And Open Market Moves

When a central bank buys government bonds (aka quantitative easing), it injects liquidity into the system. This usually weakens the currency. More money chasing the same goods = inflation risk.

When they sell bonds, it has the opposite effect.

Controlling The Narrative

Sometimes, words move markets more than actions.

Central banks use ‘forward guidance’, which is a carefully worded statement that signals what they plan to do. These can shift sentiment and move currency pairs long before any actual policy change.

Traders don’t just watch what central banks do. They watch what they say, how they say it, and what they don’t say.

List Of Countries And Their Respective Central Banks

Country	Central Bank
United States	Federal Reserve System (The Fed)
United Kingdom	Bank of England (BoE)
Eurozone	European Central Bank (ECB)
Japan	Bank of Japan (BoJ)
China	People’s Bank of China (PBoC)
Malaysia	Bank Negara Malaysia (BNM)
Australia	Reserve Bank of Australia (RBA)
Canada	Bank of Canada (BoC)
Switzerland	Swiss National Bank (SNB)
India	Reserve Bank of India (RBI)
South Korea	Bank of Korea (BOK)
Indonesia	Bank Indonesia
Singapore	Monetary Authority of Singapore (MAS)
Turkey	Central Bank of the Republic of Turkey (CBRT)
Brazil	Central Bank of Brazil
Russia	Central Bank of the Russian Federation
South Africa	South African Reserve Bank

FAQ

Can a central bank go bankrupt?

Technically, no. Central banks can create money, so they cannot go bankrupt in the traditional sense. However, they can suffer from a loss of credibility if policies are mismanaged.

What do ‘hawkish’ and ‘dovish’ mean in central bank language?

‘Hawkish’ indicates a preference for tighter monetary policy (eg, rate hikes), while ‘dovish’ implies support for looser policy (eg, rate cuts).

How often do central banks meet?

Most central banks have scheduled meetings 6–12 times a year to set monetary policy.

Are central banks part of the government?

Central banks are usually independent entities, though they are established and governed by national legislation.

How is a central bank different from commercial banks?

There are several key distinctions that set these two institutions apart. To make it simple, just remember this one critical difference: a central bank serves its nation by being the apex authority on monetary policies. A commercial bank serves individuals and businesses for regular financial services, like loans, deposits, mortgages, investments and digital banking.

The Japanese yen gained value after Japan’s Upper House election results. Prime Minister Ishiba’s coalition lost its majority in both the Upper and the Lower House, leading to uncertainty in Japan. The USD/JPY exchange rate briefly dipped below 147.80 but climbed back to above 148.60, later stabilizing between 148.30 and 148.55. Japan’s markets were closed for the Marine Day holiday, impacting yen liquidity. New Zealand’s inflation data for the second quarter showed the annual CPI increase at 2.7%, slightly lower than expected. The quarterly CPI rose by 0.5%, also below expectations. As a result, the NZD/USD fell to around 0.5940. The Reserve Bank of New Zealand’s Sectoral Factor Model pointed to inflation easing to 2.8% year-on-year, with non-tradeable inflation dropping to 3.7%, reinforcing the possibility of a rate cut in August.

People’s Bank Of China Rates

The People’s Bank of China held its Loan Prime Rates steady: – 1-year LPR: 3.00% – 5-year LPR: 3.50% Most major currency pairs remained stable, trading in narrow ranges. In the stock market, Hong Kong’s Hang Seng index rose by 0.3%, while Shanghai Composite increased by 0.4%. Japan’s Nikkei 225 was closed due to the holiday. The political deadlock after Ishiba’s coalition loss brings significant uncertainty for the yen. We saw this as the USD/JPY dipped and then sharply rebounded, indicating the market is reassessing risk. We recommend buying volatility through USD/JPY options, like straddles, since one-month implied volatility is just under 10%, which may not fully capture the potential for drastic policy changes.

New Zealand’s Economic Outlook

New Zealand’s lower inflation figures, especially the drop in non-tradeable inflation to 3.7%, strengthen the case for a central bank policy change. The market now sees over a 75% chance of an interest rate cut in August, indicating a clear direction for the currency. Therefore, we find it valuable to position for further kiwi weakness by purchasing NZD/USD put options or establishing bearish risk reversals. China’s central bank’s decision to keep rates steady shows a preference for stability over aggressive stimulus for now. This aligns with recent mixed economic signals, such as the Caixin Manufacturing PMI slightly above the 50 mark, suggesting slow growth. Traders might consider selling covered calls on Hang Seng index trackers to profit from the anticipated range-bound price action. Create your live VT Markets account and start trading now.

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HSBC’s analysis shows that the USD/JPY exchange rate is fairly valued between 146 and 152. However, changes in politics, economics, and policy could cause the JPY to recover. Important factors include a possible trade agreement between the US and Japan, potential easing by the Fed, or direct intervention by Japan in currency markets. Factors that could strengthen the JPY include a trade deal that lowers tariffs, which may ease fiscal concerns and raise hopes for a Bank of Japan (BoJ) rate hike. The JPY’s Real Effective Exchange Rate (REER) is about 10–35% below historical levels, suggesting it could appreciate. Many BoJ investors are under-hedged, making a JPY rally more likely if market sentiment changes.

Risks for USD/JPY

Risks for USD/JPY include expected Fed rate cuts, with HSBC forecasting one for September, alongside possible global economic downturns or significant slowdowns in the US. Questions about the Fed’s independence may also weigh on the currency pair. HSBC notes that the Ministry of Finance may intervene if USD/JPY reaches 155–160, a point that could change due to US focus on currency intervention. While HSBC sees the fair value for USD/JPY within its current range, potential events in trade diplomacy, Fed actions, and MoF interventions pose risks for the pair. Further appreciation is possible, but existing policies and valuation limitations might act as barriers. Currently, the USD/JPY pair is trading above the recommended 146–152 fair value range, recently reaching over 158. This raises concerns as it approaches the potential intervention level of 160. Current price levels reflect a notable tension between US interest rate expectations and the risk of action from Japanese authorities.

Market Dynamics and Strategies

We should keep an eye out for a significant drop fueled by intervention, similar to the move in October 2022 when over $40 billion was spent to defend the yen after it crossed 151. Japan’s top currency diplomat, Masato Kanda, recently emphasized that authorities are ready to act at any time, which adds weight to this warning. The market remembers the past rapid drop of the yen, leading traders to anticipate a similar occurrence. The triggers for a reversal are becoming more clear, especially regarding future central bank policies. The CME FedWatch Tool indicates that there is now a greater than 60% chance of a US rate cut by September. A move towards easing by the Fed would reduce the interest rate gap that has strongly supported the pair’s strength. From a fundamental standpoint, the yen’s weakness is at an all-time low, which is significant. The yen’s real effective exchange rate, a comprehensive measure of its value, recently hit its lowest level since the 1970s. This level of undervaluation strongly supports the case for a potential long-term recovery, regardless of short-term policy actions. Given this analysis, we believe that derivative strategies that benefit from volatility spikes are wise. Buying options like straddles or strangles allows traders to profit from large price movements in either direction without needing to predict the exact timing of an intervention or breakout. Alternatively, traders convinced that intervention is close could buy JPY calls (USD/JPY puts) to prepare for a sharp decline, even though higher implied volatility makes these options costlier. Create your live VT Markets account and start trading now.

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