Trading Interest Rate Decisions: How to Trade Fed & Central Bank Announcements

Interest rate decisions are the most powerful scheduled events in forex. When a central bank raises, cuts, or holds rates—or even hints at future changes—currency pairs can move 100 pips or more within minutes.

Unlike economic data releases that reflect what happened, rate decisions shape what’s coming next. They set the direction for monetary policy, influence carry trades, and can trigger trends that last weeks or months.

This guide covers how to trade central bank announcements, what signals to watch for, and strategies for capturing these high-impact moves.

Why Interest Rates Move Currencies

The relationship is straightforward: higher interest rates attract capital, which strengthens the currency.

When a country raises rates, it becomes more attractive to hold that currency. Investors earn higher yields on deposits and bonds. Money flows in, demand for the currency increases, and its value rises.

The opposite happens with rate cuts. Lower yields make the currency less attractive. Capital flows out seeking better returns elsewhere.

Rate Differentials and Carry Trades

Traders don’t just look at individual rates—they look at the differential between currencies. If the Fed funds rate is 5% and the ECB rate is 3%, there’s a 2% advantage to holding USD over EUR.

This drives “carry trades,” where traders borrow in low-yielding currencies to invest in high-yielding ones. When rate expectations shift, these positions unwind and currency pairs can move sharply.

Major Central Banks and Their Currencies

Central Bank	Currency	Meetings Per Year	Typical Time (ET)
Federal Reserve (Fed)	USD	8	2:00 PM + 2:30 PM presser
European Central Bank (ECB)	EUR	8	8:15 AM + 8:45 AM presser
Bank of England (BoE)	GBP	8	7:00 AM
Bank of Japan (BoJ)	JPY	8	Variable (often overnight)
Reserve Bank of Australia (RBA)	AUD	11	12:30 AM
Bank of Canada (BoC)	CAD	8	10:00 AM

Anatomy of a Rate Decision

Rate decisions unfold in stages, each with potential to move markets:

1. The Rate Decision Itself

The headline: rates raised, cut, or held. If it matches expectations, the immediate reaction may be muted. Surprises cause the biggest moves.

2. The Policy Statement

The written statement accompanying the decision. Traders analyze every word for clues about future policy. Changes in language from previous statements are particularly significant.

3. Economic Projections (When Released)

The Fed releases quarterly projections including GDP growth, unemployment, inflation, and the “dot plot” showing rate expectations. The ECB also provides updated projections at certain meetings.

4. The Press Conference

Fed Chair, ECB President, or BoE Governor takes questions from journalists. This often produces a second wave of volatility as officials clarify or expand on the statement. Many traders find the press conference moves markets more than the initial decision.

What to Watch For

Hawkish vs. Dovish Signals

Hawkish (bullish for currency):

• Emphasis on inflation concerns
• Language suggesting more hikes ahead
• Upward revisions to rate projections
• Comments about strong economic conditions

Dovish (bearish for currency):

• Focus on growth risks or employment
• Language suggesting pause or cuts ahead
• Downward revisions to rate projections
• Concerns about economic slowdown

Forward Guidance Language

Central banks use specific phrases to signal intentions. Watch for changes like:

• “Further increases may be appropriate” → hawkish
• “Data dependent” → neutral, watching
• “Prepared to adjust as needed” → possibly turning
• “Easing conditions” → dovish

The Dot Plot (Fed Specific)

The dot plot shows where each Fed official expects rates to be at year-end for the next few years. Traders compare new dots to previous ones and to market expectations.

If the median dot for year-end is higher than the market expected, that’s hawkish. Lower than expected is dovish.

Vote Split

Not all central bank officials agree. A 7-2 vote to hold rates with two preferring a hike suggests hawkish pressure building. A split vote can hint at future policy direction.

How to Prepare for Rate Decisions

Know Market Expectations

Before trading any rate decision, know what’s priced in:

• Fed funds futures: Show probability of rate changes at future meetings
• Economic calendars: Display consensus forecast for the decision
• Financial media: CNBC, Bloomberg, Reuters cover expectations extensively

If markets expect a hold with 95% probability, the hold itself won’t move prices much. The statement and press conference become the focus.

Review Recent Central Bank Communications

Read the previous statement. Listen to recent speeches from officials. This helps you spot meaningful changes in language when the new statement drops.

Plan for Multi-Stage Volatility

Rate decisions aren’t one-and-done events. Plan for:

1. Initial reaction to headline (2:00 PM for Fed)
2. Digestion of full statement (next 5-15 minutes)
3. Press conference moves (2:30 PM for Fed, lasting 45-60 minutes)

Trading Strategies for Rate Decisions

Strategy 1: Trade the Reaction

Concept: Wait for the decision, assess the market’s reaction, and enter once direction is established.

How to execute:

1. Stay flat before the announcement
2. Watch the initial reaction (first 5-15 minutes)
3. Wait for a clear directional move to establish
4. Enter in the direction of the move with a stop beyond the pre-announcement level

Best for: Most traders. Lower risk than trying to anticipate the decision.

Strategy 2: Trade the Press Conference

Concept: Skip the initial decision entirely. Focus on the second wave of volatility during the press conference.

How to execute:

1. Note the market’s position after the statement
2. Watch for key comments during the presser that shift sentiment
3. Enter when a clear breakout from the post-statement range occurs
4. Use the range as your stop-loss reference

Best for: Traders who can watch live and react to headlines. The press conference often provides cleaner moves than the chaotic initial reaction.

Strategy 3: Fade the Overreaction

Concept: Markets sometimes overreact to rate decisions, especially on hawkish/dovish holds. Trade the reversal.

How to execute:

1. Watch for an exaggerated initial move
2. Look for exhaustion signals (rejection candles, stalling momentum)
3. Enter against the move with a tight stop beyond the extreme
4. Target a 50% retracement

Best for: Experienced traders comfortable with counter-trend entries. Works best when the decision matches expectations but the initial reaction is extreme.

Currency Pair Selection

Trade the currency directly affected by the decision:

• Fed decision: EUR/USD, USD/JPY, GBP/USD
• ECB decision: EUR/USD, EUR/GBP, EUR/JPY
• BoE decision: GBP/USD, EUR/GBP
• BoJ decision: USD/JPY, EUR/JPY
• RBA decision: AUD/USD, AUD/JPY

EUR/USD for Fed decisions and USD/JPY typically offer the cleanest moves with best liquidity.

Risk Management for Rate Decisions

Account for Extended Volatility

Unlike NFP which moves in minutes, rate decisions can produce volatility for 1-2 hours (statement + press conference). Size your position to withstand the full event.

Watch for Press Conference Reversals

A common pattern: the initial reaction to the statement moves in one direction, then the press conference reverses it. Don’t assume the first move is the final move.

Use Wider Stops

Standard stop-loss distances don’t work during rate decisions. Either widen significantly or wait for volatility to settle before entering.

Consider Execution Quality

Spreads widen and slippage increases during announcements. A forex VPS can help ensure faster execution, but even with optimal setup, expect some slippage on major announcements.

Frequently Asked Questions

What time does the Fed announce interest rates?

The Federal Reserve announces interest rate decisions at 2:00 PM Eastern Time. The press conference with the Fed Chair begins 30 minutes later at 2:30 PM ET. Decisions are announced 8 times per year.

What does hawkish vs dovish mean?

Hawkish means the central bank is concerned about inflation and likely to raise rates or keep them higher. Dovish means the bank is focused on growth and employment, likely to cut rates or keep them lower. Hawkish signals typically strengthen a currency; dovish signals weaken it.

How much do currency pairs move on rate decisions?

Rate decisions can move major pairs 50-200+ pips, especially if the decision surprises the market. The move often happens in two stages: an initial reaction to the statement, then additional movement during the press conference.

Should I trade before or after rate decisions?

Most traders find it safer to trade after the announcement, once the market’s reaction is clear. Trading before carries significant risk if the decision surprises. Some experienced traders take small positions before, then add after confirmation.

What is the dot plot?

The dot plot is a chart released by the Federal Reserve showing where each Fed official expects interest rates to be in the future. It’s released quarterly and can move markets significantly as traders compare current expectations to new projections.

Final Thoughts

Interest rate decisions offer some of the best trading opportunities in forex—if you approach them correctly. The key is understanding that it’s not just about whether rates change, but what the central bank signals about the future.

Focus on the language, the projections, and the tone. Watch the press conference as closely as the statement. And always know what’s already priced in before the announcement.

For more on trading news events, see our beginner’s guide to forex news trading and our NFP trading guide.