How the Fed Affects Forex: A Desk Guide

The Desk’s Guide

By Ken Chigbo, Founder, KenMacro, 18+ years across discretionary and systematic strategies, UK macro desk.

Find Ken on X @realkenchigbo · YouTube @Realkenchigbo · MACRO MASTERY Discord

Updated 2026-05-23

The Fed’s role and its primary tool

The Federal Reserve operates under a dual mandate set by Congress: maximum sustainable employment and price stability. Price stability means keeping inflation close to the 2 per cent target over the medium term. These two objectives are often in tension, and how the Fed balances them determines the direction of US monetary policy at any point in the cycle. The primary tool for that balancing act is the federal funds rate, the target interest rate for overnight lending between US banks. When the Fed raises this rate it makes credit more expensive, slowing borrowing, cooling demand and pulling inflation lower. When it cuts, credit cheapens, spending picks up and employment is supported. Every forex pair with USD on either side is sensitive to where that rate is and, more precisely, where markets think it is heading.

The FOMC calendar and the events traders watch

The Federal Open Market Committee holds eight scheduled meetings per year. The 2026 dates are January 27-28, March 17-18, April 28-29, June 16-17, July 28-29, September 15-16, October 27-28 and December 8-9. The rate decision and statement are released at 14:00 ET, followed by a press conference from the Fed Chair at 14:30 ET after every meeting. Four of those eight meetings (March, June, September and December) also include the Summary of Economic Projections, the SEP, which contains the dot plot: a grid showing each FOMC member’s anonymous forecast for where the funds rate will sit at year-end over the next three years and in the long run. The dot plot is often the single most market-moving element of the entire release. A shift in the median dot by a quarter point can reprice EUR/USD by 80 pips before the press conference begins. For exact dates and times of upcoming FOMC meetings, use the KenMacro economic calendar at https://kenmacro.com/economic-calendar/ rather than relying on any figure in this guide.

How rate decisions and guidance move the dollar

A rate hike raises US yields relative to other G10 economies. Capital seeking yield flows into dollar-denominated assets; the dollar appreciates. A cut does the reverse. That is the simple version. The harder truth is that the dollar often moves more on guidance than on the rate decision itself, because the decision is typically priced in days or weeks before the meeting. The statement language is the first read: words like ‘ongoing increases may be appropriate’ are hawkish; ‘patient’ or ‘data-dependent pause’ are dovish. The dot plot then quantifies the guidance numerically. A hawkish surprise, where the median dot moves higher than markets expected, produces the sharpest USD rallies because it forces a repricing across the entire rate curve at once. The press conference adds nuance: Powell can soften a hawkish dot plot by emphasising uncertainty, or harden a dovish one by signalling the committee is watching specific data. The desk reads all three components together before calling the direction confirmed.

The balance sheet: QE and QT as a slower channel

Beyond the rate, the Fed controls the size of its balance sheet, currently holding Treasury securities and mortgage-backed securities accumulated through multiple rounds of quantitative easing since 2008. QE involves the Fed purchasing these assets, injecting reserves into the banking system and increasing the supply of dollars in circulation. A greater supply of dollars relative to other currencies exerts downward pressure on USD over time, though the effect is slower and less mechanical than a rate move. QT is the opposite: the Fed allows maturing securities to roll off without reinvesting, shrinking the balance sheet and gradually withdrawing liquidity. QT tends to provide mild, sustained USD support by reducing the quantity of dollars outstanding. Both channels work across months and quarters rather than hours and days, which is why they matter more to macro positioning than to intraday trading. The practical point for the desk: QE tends to amplify risk-on moves in AUD, NZD and EM currencies; QT tends to amplify risk-off USD bids.

How the desk trades Fed days

The desk does not pre-position in the hour before the decision. Spreads widen, liquidity thins and the risk of a stop run off a leaked headline is not worth carrying into the statement drop. The process starts earlier: identify the macro consensus, locate where the market is positioned via COT and options skew, and note which scenario is priced versus which would be a genuine surprise. At 14:00 ET the statement crosses; the desk reads the key language changes against the prior statement before touching a chart. At 14:30 ET the press conference starts, and that is where the trade often sets up, as the initial statement spike retraces or extends based on Powell’s tone. If statement, dot plot (on SEP meetings) and press conference all signal the same direction, the move has legs and the desk will ride it. If they diverge, the initial move is treated as a fake and faded. Spreads normalise within 10 to 15 minutes of the initial release, and that is typically when entries with defined parameters make sense.

Frequently asked

How many FOMC meetings are there per year?

The FOMC holds eight regularly scheduled meetings per year. Each meeting produces a rate decision and a statement. Four of the eight (March, June, September and December) also include the Summary of Economic Projections, which contains the dot plot showing FOMC members’ rate forecasts. All eight meetings in 2026 include a Fed Chair press conference at 14:30 ET following the statement.

What does hawkish mean for the dollar?

Hawkish means the Fed is prioritising inflation control, signalling higher rates or a slower pace of cuts. Higher rates raise the yield on dollar-denominated assets, attracting capital inflows and strengthening USD. A hawkish surprise in the statement or dot plot tends to produce the sharpest USD rallies because it forces a repricing of rate expectations across the full forward curve at once.

What is the dot plot and why does it move markets?

The dot plot is part of the Summary of Economic Projections, published at four FOMC meetings per year. Each voting and non-voting FOMC member submits an anonymous forecast of where they think the federal funds rate will be at year-end for the next three years and in the long run. The median dot is what markets focus on. When it shifts higher than expected, the dollar typically strengthens sharply; when it shifts lower, the dollar sells off. It is a direct read of where 19 policymakers expect rates to go.

Does QE or QT directly affect forex?

Yes, but more slowly than rate moves. QE increases the supply of dollars by having the Fed purchase securities and inject reserves into the system. More dollars in circulation tends to weaken USD over time and supports risk-on currencies like AUD and NZD. QT removes liquidity by letting the balance sheet shrink, providing mild USD support. Neither channel produces the same sharp intraday moves as a rate surprise; both matter more to medium-term macro positioning than to day trading.

Why does the dollar sometimes fall after a rate hike?

Because the hike was already priced in. Forex markets are forward-looking; if a 25 basis point hike is 95 per cent priced before the meeting, the actual decision moves the market very little. What matters is the guidance: if the Fed hikes but the statement or dot plot signals a pause ahead, the dollar can sell off sharply on the dovish forward guidance even as the rate rises. Traders call this ‘buy the rumour, sell the fact.’ The press conference often determines whether the knee-jerk move holds.

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