Fed Sentiment Index
FXStreet Fed Sentiment Index: Tracking Fedspeak changes to find a trading edge
Deciphering Fedspeak: Why it is crucial to understand monetary policy shifts
In the recently updated FAQ section of its official website, the Fed explains:
“Forward guidance is a tool that central banks use to tell the public about the likely future course of monetary policy. When central banks provide forward guidance, individuals and businesses can use this information in making decisions about spending and investments. Thus, forward guidance about future policy can influence financial and economic conditions today.”
The Fed has two mandates: Achieving maximum employment and promoting stable prices. The Fed doesn’t take asset prices into consideration when setting its monetary policy. That, however, doesn’t change the fact that monetary policy decisions and comments on the outlook have a significant impact on financial markets.
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Interpreting comments from Fed policymakers and reading between the lines in official communications is not an easy task, especially for beginner traders. At FXStreet, we have developed a custom AI model – the Speech Tracker, which analyzes all the relevant speeches by the FOMC members and rates them on a dove-hawk scale. This allows us to provide traders with real-time notifications on our Economic Calendar on how each Fedspeak could influence the USD’s valuation.
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Introducing FXStreet Fed Sentiment Index
FXStreet Fed Sentiment Index presents the Fed’s tone as a single value, taking into consideration comments from all voting and non-voting members of the FOMC in TV appearances, conferences, interviews, as well as the Fed’s official written communications and more.
A value of 100 represents a neutral tone. An increasing value above 100 points to a hawkish tilt in the Fed’s language, while a decreasing value below 100 suggests a dovish change in sentiment. The highest the index is, the most hawkish FOMC speakers are sounding ahead of the next monetary policy meeting and vice versa, lower levels suggest dovish shifts in the future Fed policy stance.
FXStreet Fed Sentiment Index is adjusted every time a Fed policymaker delivers comments on the policy outlook. While our Speech Tracker provides valuable insights into possible short-term reactions to individual FOMC speeches, our Fed Sentiment Index aims to explain how markets perceive the Fed language in its totality, over a longer period of time. Hence, its value cannot be understated with regard to spotting changes in USD-related asset price patterns, assessing inter-market correlations, and identifying divergences between near-term market reactions and long-term trends.
FXStreet Fed Sentiment Index performance in 2024: Fed’s dovish quest halted by Trump’s triumph
The downtrend continued for one more month, while the Fed materialized a second rate cut at its early November meeting, but it has completely turned around since the US election.
Donald Trump’s clear victory, and his well-known intentions to use tariffs and tax cuts, which could trigger new legs of inflation, have seemingly affected how FOMC members perceive future monetary policy. As a result, the index turned hawkish to begin the new year.
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EUR/USD stays defensive below 1.0500 amid light trading
EUR/USD struggles to capitalize on recent upside and oscillates in a narrow range below 1.0500 in European trading on Monday. However, the pair's downside remains cushioned by persistent US Dollar weakness and an upbeat mood. Focus shifts to central bank talks.
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GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD keeps its range near 1.2600 in the early European session on Monday. The pair stays support amid a subdued US Dollar price action following Friday's disappoining US Retail Sales data. Thin trading is likely to extend as US markets are closed in observance of Presidents' Day.
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Gold: Bulls have the upper hand near $2,900 amid trade war fears and weaker USD
Gold regained positive traction on Monday amid sustained USD weakness. Concerns about Trump’s tariffs further benefit the safe-haven XAU/USD pair. The fundamental and technical setup underpin prospects for additional gains.
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Cardano set for 20% rally as bullish bets increase
Cardano price extends its rally on Monday after gaining more than 13% last week. On-chain metrics suggest a bullish picture as ADA’s long-to-short ratio reached the highest level in over a month.
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Tariffs likely to impart a modest stagflationary hit to the economy this year
The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.