How to Gauge Policy Expectations from Fed Hikes to BoJ QE

Talking Points:

• Monetary policy remains one of the key drivers for the FX market

• We can use market-based benchmarks to gauge monetary policy expectations - from hawkish to dovish

• Instruments like Fed Fund futures can offer a quantitative read, but often there is no solid market gauge

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Monetary policy is one of the FX market's key fundamental drivers - from speculation of a Fed rate hike to the anticipation of massive ECB stimulus. As such, it is important to gauge what markets anticipate for policy moving forward, how much is priced in and to speculate for ourselves what has yet to be fully appreciated. Some measures of market pricing are easily read. Fed Funds and Short Sterling futures are products directly purposed for hedging against rate changes. Yet, these are not universally liquid for all currencies. Government bond yields are a better, consistent measure. Knowing what the market is pricing, we must then establish where it is trending and speculate on where it will further go. We discuss the fundamentals of pricing monetary policy regimes like the Fed, ECB, BoJ and BoE in today's Strategy Video.

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