How Central Bank Decisions Move Currencies: Surprises, Guidance and Carry Trades

A decision is several releases, not one

On meeting day the market gets information in stages. The Federal Reserve publishes its statement at 14:00 New York time and the chair's press conference follows 30 minutes later. At the ECB the decision comes at 14:15 Frankfurt time and the press conference at 14:45. The Bank of England publishes its decision at 12:00 London time together with the MPC vote split. Four times a year, the Fed also publishes its economic projections alongside the decision. For 2026 those are the March, June, September and December meetings.

Each stage can say something different. The decision may match expectations while the press conference hints at what comes next. For exact times in your own timezone, see our guide to forex trading sessions.

What actually moves the price: the surprise

Currencies react to the difference between what happened and what the market expected. A hypothetical example makes the arithmetic plain.

Suppose futures markets imply an 80% chance of a 25 basis point cut at the next meeting. The expected cut is 0.80 × 25 \= 20 basis points.

A cut can strengthen a currency if it is smaller than the market feared, and a hold can weaken one if traders wanted a cut. The headline result tells you little. The gap to pricing is what counts.

Rates, guidance and the balance sheet

Research shows that one number is not enough to describe a meeting. Gürkaynak, Sack and Swanson analysed US policy announcements with high-frequency data (Federal Reserve Board paper, 2004; published in the International Journal of Central Banking, 2005). They found that two factors are needed: one for the current policy rate and one for the expected direction of future policy.

ECB researchers extended this idea to the euro area. In their framework, Altavilla and co-authors separate the press release from the press conference and identify four factors: the target rate, timing, forward guidance and quantitative easing (QE). The ECB's own summary of the research notes that they work at different maturities. The rate decision mostly affects short-term yields, forward guidance peaks at around two years, and QE has a larger effect the longer the maturity. The bulletin also says that the euro exchange rate responds to these announcements, though it does not quantify the size.

For a forex trader the practical point is that a currency can move on the press conference while the decision itself was a non-event.

Case 1: the ECB's asset purchases, January 2015

On 22 January 2015 the ECB announced that combined monthly purchases of public and private securities would total €60 billion, to run until at least September 2016\. An ECB Executive Board member, Benoît Cœuré, addressed this in a July 2017 speech. He said studies that include earlier signals and comments by policymakers found that the programme may have led to a depreciation of the euro of up to 12% against the US dollar. He added that exchange rates often change before the actual announcement, in anticipation of policy action, and that the ECB's research found the depreciation worked mainly through the signalling channel, meaning what the announcement told markets about future policy.

Two lessons follow. The move was spread over many events and statements, so the announcement day captures only part of it. And "up to 12%" is a range from the studies the speech summarises. Treat it as an estimate, not as the size of a single-day reaction.

Case 2: the Bank of Japan, July and August 2024

On 31 July 2024 the Bank of Japan said it would encourage the overnight call rate to stay at around 0.25%. The vote was 7–2. The same statement set out a plan to cut monthly JGB purchases to roughly ¥2.9 trillion by January–March 2026\.

Two days later came a US jobs report that investors read as somewhat disappointing. On Monday 5 August, according to a BIS bulletin, Japan's TOPIX lost 12%, the S\&P 500 lost 3.0%, and the VIX spiked to levels above 60\. The BIS describes the Bank of Japan's move as hawkish and links the turmoil to the unwinding of carry trades, where investors borrow in a low-yielding currency such as the yen to hold higher-yielding assets.

The BIS also notes that the yen's depreciation trend had already reversed from the first half of July, amid rumoured intervention. So the August episode had several causes: a hawkish central bank, softer US data, crowded positions and a market that was already turning. A single decision did not produce it.

How to read the next meeting

1. Find the market's expectation first. Futures and swap markets show what is priced. Compare the outcome with that, not with last month's rate.
2. Split the event into stages. Note when the decision, statement, press conference and projections arrive and what each might change.
3. Look at what changed in the guidance. Did the central bank signal more cuts, fewer, or a pause? The path often matters more than the rate.
4. Check positioning. If a currency has been funded heavily, as the yen was in 2024, a hawkish surprise can have an outsized effect.
5. Expect pre-positioning. Cœuré's remark that exchange rates often move before announcements is a reminder that the move may be partly done by the time the decision lands.
6. Price the cost of trading it. Check your broker's spreads around the release, as described in our guide to spreads, commissions and swaps.