The Impact of Central Bank Decisions on Currency Markets

Central bank decisions are among the most significant drivers of currency markets. Understanding how to trade around these events can provide significant opportunities—and risks.

Major Central Banks

• Federal Reserve (Fed): Controls USD policy
• European Central Bank (ECB): Manages EUR
• Bank of Japan (BoJ): Oversees JPY
• Bank of England (BoE): Manages GBP
• Swiss National Bank (SNB): Controls CHF

What to Watch

Interest Rate Decisions

Higher rates typically strengthen a currency by attracting yield-seeking capital. Lower rates often weaken it.

Forward Guidance

Central banks signal future policy direction. Hawkish guidance (suggesting rate hikes) is bullish for the currency; dovish guidance is bearish.

Quantitative Easing/Tightening

QE expands money supply (bearish for currency); QT reduces it (bullish).

Trading Strategies

Before the Event

• Reduce position sizes
• Widen stops or close positions
• Note market expectations vs likely outcomes

During the Event

• Avoid trading the initial spike
• Wait for price to settle
• Watch for reversals after knee-jerk reactions

After the Event

• Trade in the direction of policy divergence
• Look for continuation setups