In practice
Central banks move markets more than any other single actor, because the interest rate they set changes the value of money itself. Their decisions, forecasts and even the wording of their statements are studied for hints about what comes next.
Traders follow the meeting dates of the banks behind the currencies and markets they trade. The gap between two central banks' policies is a main driver of the exchange rate between their currencies.
What to watch for
Markets react to the difference between what was expected and what was said, not to the decision alone. A rate rise that everyone expected can send the currency down if the tone is softer than feared.
Related terms
4 terms- FOMCThe Fed committee that sets US interest rates, eight times a year: decision at 2:00 pm, press conference at 2:30 pm.
- Interest rateThe price of money set by central banks; higher rates usually lift the currency and weigh on stocks and gold.
- ForexTrading one currency against another, quoted in pairs like EUR/USD.
- RBIThe Reserve Bank of India: the country's central bank, which sets the repo rate and manages the rupee.