Hawkish

A hawkish stance prioritises keeping inflation under control, even at some cost to growth. Hawks favour raising rates, holding them high for longer, or shrinking the central bank's balance sheet. The opposite is dovish.

Signs of a hawkish tilt

• A rate hike, or a signal that one is coming.
• Language stressing that inflation is too high or that risks are "to the upside".
• More policymakers voting for a hike than expected, or dissents in favour of tighter policy.
• A higher projected rate path, such as a hawkish shift in the FOMC dot plot.
• Pushback against market expectations of cuts.

Why currencies react

Higher expected interest rates make a currency more attractive to hold, so a hawkish surprise tends to support it. As with all central bank news, what matters is how the message compares with what markets expected.

Worked example

Illustratively, markets expect the Bank of England to cut rates at its next meeting. It holds instead, and two members vote for a hike. Expectations for the rate path move higher, short-term gilt yields rise and sterling strengthens, all from a decision to do nothing.

Practical notes

• "Hawkish hold" (no change, tough language) and "dovish hike" (a rise signalled as the last) are common phrases.
• Market reaction around these events can be fast, and spreads often widen. See why spreads widen.

See central banks and interest rates.