Monetary Easing
Central bank policy that adds money and lowers rates to stimulate the economy.
Monetary easing is central bank action to lower rates and expand money supply to stimulate growth.
Monetary easing is when a central bank cuts interest rates or expands the money supply to support growth. It tends to weaken the currency in the near term because lower rates reduce its yield appeal. Traders watch easing cycles closely because they set the direction of many pairs.
How It Works
- It usually weakens the currency
- Lower rates cut yield appeal
- It often supports equities and risk assets
Trading Tips
Track easing cycles for currency direction
Read it against the policy of the other side of the pair
Expect the market to price easing before it happens
Monetary Easing Example
Say the ECB cuts 25 basis points and hints at more while the Fed holds. EUR/USD slides 150 pips over days as yield money rotates out. Easing currencies fade. Holding currencies bid.
How Traders Use Monetary Easing
Sell easing currencies on rallies and buy the holders on dips. Easing cycles run quarters, not days, so position with the trend and ignore single-meeting noise.
Related Terms
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