End of the Central Bank Gravy Train ?

The greenback has rallied around two percent against the yen from lows touched before the Federal Reserve on Wednesday lifted borrowing costs and indicated further tightening of monetary policy.

The central bank also outlined plans to suck cash out of the financial system by scaling back the bonds on its balance sheet.

By the break, Tokyo’s Nikkei index was up 0.5 percent, with traders awaiting the conclusion of the Bank of Japan’s latest board meeting. While it is not expected to change tack, its statement and a news conference by governor Haruhiko Kurada will be pored over for forward guidance.

Hong Kong added 0.4 percent a day after tumbling more than one percent, while Sydney and Singapore each put on 0.3 percent. Wellington and Taipei also rose but Seoul dipped on 0.1 percent and Shanghai was off 0.2 percent.

The pound extended gains after surging on Thursday in response to the surprise news that three out of the Bank of England’s eight policy board members had voted for a rate hike as inflation continues to rise on the back of increasing import costs.

Sterling had fallen below $1.270 before the decision but bounced to as high as $1.2795 afterwards before settling slightly lower. However, it remains pressured by political uncertainty following last week’s election that saw the ruling Conservatives of Prime Minister Theresa May lose their majority.


Analysts said the post financial crisis era of ultra-low rates and easy money was coming to an end as central banks around the world began to tighten the belt.

“The markets continue to digest the latest signals from the Federal Reserve Board who are now actively discussing how and when to pare back the balance sheet,” said Stephen Innes, senior trader at OANDA, in a note.

“But just as significantly the investors are now coming to grips with the notion that perpetual global central bank gravy train may be coming to an end.”



This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes