During your daily news scouting and trading education sessions, you might have already encountered the terms ‘Hawkish’ and ‘Dovish’ being used to describe the monetary policies of nations. You might have asked yourself at some point, why is monetary policy described as such?
Let’s have Dovish vs Hawkish explained
Simply put, Dovish policies involve the lowering of various interest rates while Hawkish policies involve the raising of interest rates. Taking into consideration that the economies of nations are in a ‘constant state of flux’, good policy is knowing when to apply Dovish vs Hawkish for successful growth, for avoiding inflation and deflation and for successful countering of economic stagnation and depression respectively.
Ok, you might say, but what’s up with the birds?
The Dove is, universally, a symbol of peace, freedom and liberty. Thus, loose and more accommodating monetary policies are described, symbolically, as ‘Dovish.’ For example, a Dovish monetary policy makes it cheaper to buy a house by lowering mortgage rates, cheaper to buy a car by lowering auto-loan rates, cheaper to build roads and other works of infrastructure by lowering municipal bond rates and so forth.
Dovish monetary policies are favoured when the goals are economic growth stimulation and the prevention of excessive deflation. However, when such policies are undertaken they negatively affect the power of the nation’s currency by weakening it.
On the contrary, the Hawk is a symbol of power, dominance and control much like the firm grip of its claws. Hawkish monetary policies aim at slowing down economic growth and preventing excessive inflation by raising various interest rates. When such policies are preferred the power of the nation’s currency is strengthened.