Whats the difference between hawkish and dovish statements?
When a countries central banks released statements its important to listen to not only what they say but how it is being said, these statements are often described as either hawkish or dovish. When a central bank has an aggressive tone and is talking about reducing inflation by raising interest rates which reduces spending, increases the cost of borrowing and encourages saving, this is known as hawkish, raising interest rates may help reducing inflation but causes economic slow down and also has a negative effect on employment. A dovish statement is the opposite, a calm tone wanting to increase economic growth by reducing interest rates which in turn increases spending and decreases the cost of borrowing, this increases employment and helps economic growth.
How hawkish and dovish statements affect the forex market
Central bank statements can cause high volatility in the forex market producing good opportunities for potential trades. When a hawkish statement is released this indicates that inflation may be increasing too fast and needs to be controlled using interest rate hikes, while this slows the economies growth due to high borrowing costs it also increases the value of the currency because of the high interest rate and higher demand. When a dovish statement is released this indicates that inflation may be too low and the economy requires a boost by interest rate cuts, growing the economy but reducing demand for the currency and lowering the value.