Dovish

One half of a pair of labels, the other being hawkish, used to place a central banker or a communication on a spectrum between tolerating inflation and resisting it. The dove favours lower rates, slower withdrawal of support, or asset purchases; the hawk favours the reverse. No central bank publishes these labels. They are applied by commentators and by markets reading the language.

What the market reacts to is the difference between the tone delivered and the tone expected, not the tone itself, and this is the point that catches readers out. A rate cut that was fully anticipated can be read as hawkish if the statement accompanying it sounded less accommodative than had been priced in. The reaction measures a surprise, so a dovish decision and a currency that strengthens are entirely compatible.

The reading is done on wording, and the wording is deliberate. Phrases about being patient, about downside risks to growth, about inflation expectations remaining anchored, and the removal or retention of a single sentence between one statement and the next are all parsed. The same speech is routinely described as dovish by one desk and neutral by another, which is a fair description of how imprecise the instrument is.