Who they are and what they touch
The Federal Reserve sets US rates and therefore moves every pair with a dollar in it, which is most of them. The European Central Bank covers the euro, the Bank of England the pound, the Bank of Japan the yen, and there are equivalents for every currency you can trade. When a US figure moves EUR/USD, GBP/USD and USD/JPY at the same moment, one of the two currencies in each pair is the same one.
What they are trying to do
Broadly: keep prices stable, and in some cases support employment as well. The Federal Reserve is given both by law; the European Central Bank names price stability as its primary objective. When inflation is high a central bank raises rates to slow the economy down; when growth is weak it cuts them. Every release on the calendar is read as evidence for one of those two directions.
The statement matters more than the number
The rate itself is usually known in advance. What is not known is the wording that comes with it and, where there is one, the press conference afterwards. A committee that raises a rate and says it is finished, and one that holds and hints at more, will move a currency in opposite directions from the same decision. This is what people mean by forward guidance.
They can act without meeting
Central banks intervene, buy and sell bonds, and in some cases buy or sell their own currency directly. The Bank of Japan has intervened in the yen more than once. Intervention is unannounced by design, it is violent, and it is one of the reasons a stop is not optional on a pair whose central bank has said it is watching the exchange rate.
How to use this without becoming an economist
You need the direction of travel, not a model. Which way is this central bank leaning, and which way is the other one? That is one sentence per pair, updated when something changes, and it is enough to stop you shorting a currency whose rate is rising for three weeks running.
In short
| Fed | US dollar — moves most pairs |
|---|---|
| ECB | Euro |
| BoE | Pound |
| BoJ | Yen |
| What moves price | The statement and the guidance, not the number |
| Unscheduled | Intervention happens, and it is fast |
Common questions
Which central bank should I follow?
Whichever ones sit in your pairs, and the Federal Reserve regardless, because the dollar is on one side of most of them.
What is forward guidance?
A central bank telling markets what it expects to do next, so the adjustment happens gradually rather than in one shock. It is why the wording moves price more than the decision.
Can a central bank really move a price on purpose?
Yes. Direct intervention in the currency is rare, unannounced and large. It is a good reason never to hold an unstopped position in a currency whose central bank has been complaining about its level.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.