Trader's Glossary

Sentiment

Sentiment is the general feeling surrounding a given financial instrument, market or economy. In many ways it is the aggregated attitude of all the investors taking part in that specific market. The terms ‘bullish’ and ‘bearish’ refer to the sentiment surrounding a market as much as they describe its price action. Investors also talk of ‘hawkish’ or ‘dovish’ sentiment to refer to central bankers’ attitudes to interest rates and growth; hawkish sentiment is rhetoric that supports and encourages the maintenance of high interest rates, and dovish sentiment involves promoting economic growth through low interest rates with little or no concern for inflationary pressures. Sentiment alone, even in the absence of the relevant fundamentals, can dramatically change the fortunes of a market, albeit temporarily. A perfect example of this occurred in 2012 when in the midst of Europe’s sovereign debt crisis, and much speculation regarding the future of the single currency, ECB president Mario Draghi, speaking at a conference in London, pledged to do ‘whatever it takes’ to save the Euro. The words alone were enough to cause the Euro to rally and for borrowing costs in Spain and Italy to drop.