The article being summarised is titled ‘Global Currencies Soar, Defying Central Bankers’ that appeared in The Wall Street Journal on March 17, 2016. The article discusses various actions by different central banks and the impact that such actions have had on the market.
The article states that recent efforts by central banks to depreciate their currencies by decreasing interest rates have not yielded much result and the currencies have in fact appreciated during the period.
The cases in example are of Bank of Japan and ECB cutting rates into negative territory, but Yen and Euro still appreciating against US Dollar.
The article makes an argument that such actions by the central banks have already been factored in by the market and no longer affect market movement significantly. As a result, these policies are losing their significance and not yielding the results that central banks had desired.
Central banks had started cutting interest rates in order to devalue their currencies, which would have boosted their exports. However, after initial success, this move is losing its charm with the market and such actions by the central banks now are considered redundant and repetitive.
The article states that the conventional theory, that if rates are cut investors will exit that country’s bonds in search of higher yields thus depreciating the currency value, has lost its effect. The market participants already estimate the central banks’ actions, although they are not sure about the direction of the movement in market.
In my opinion the article is very relevant to the current market environment. It has been seen in the recent period that the effect of government or central bank actions on the market have reduced, although Fed can be thought of as an exception. The central banks need to devise more innovative tools to realise the desired effects in future.
Works Cited
Zeng, Min and Iosebashvili, Ira. Global Currencies Soar, Defying Central Bankers. The Wall Street Journal. Web. 17 Mar. 2016. <http://www.wsj.com/articles/global-currencies-soar-defying-central-bankers-1458258134>.
