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Yesterday afternoon split cleanly into before and after. For most of the day the dollar drifted sideways, major pairs sat in tight ranges, and nobody wanted to commit. Then at 2pm Eastern the Fed raised rates and published a hawkish set of projections, and the dollar, gold and oil all moved hard inside a single afternoon. |
1 | The Four Phases of an FOMC Reaction |
An FOMC day is not one event. It is four, and they happen in sequence over roughly two hours. |
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1. The wait. Liquidity dries up and ranges compress. Yesterday the dollar drifted through Asia and picked up a modest bid in London, but it looked more like position-squaring than anyone expressing a view. That quiet is not calm. It is the absence of participants.
2. The decision. At 2:00pm Eastern the statement lands. This is the headline and usually the least informative part, because the decision is generally priced. The violent move happens here anyway, because algorithms react instantly into thin liquidity.
3. The projections. On four meetings a year the Fed publishes its Summary of Economic Projections with the dot plot. This frequently matters more than the decision, because it shows where policymakers think rates are going.
4. The press conference. Half an hour later the Chair takes questions. This phase most often reverses or reshapes the initial move, because the statement is a lawyered document and the press conference is not.
If you only watch the first phase, you are watching the least reliable one.
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2 | Why the First Move Often Reverses |
The initial spike is driven by speed rather than judgment. Automated systems parse the release in milliseconds and trade the headline. Human traders react to that movement. Liquidity is thin because everyone stepped back beforehand, so a modest amount of flow moves price a long way. Then the reading begins. Traders work through the full statement, compare it word by word against the previous one, open the projections, and listen to the press conference. The considered interpretation is frequently different from the instant one, and price adjusts to match. That is why a pair can spike fifty pips one way in the first minute and finish the day in the other direction. Nothing contradictory happened. The market simply moved from reading the headline to reading the document. The first ten minutes are the worst possible time to form a view. |
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3 | Why the Dot Plot Moves the Dollar More |
Yesterday demonstrated this cleanly. The Fed raised rates 25 basis points to 3.75% to 4.00% in a unanimous 12-0 vote. That was widely expected, and the hike alone would not have produced much. What produced the move was the projections. The median expectation for where rates end 2026 climbed to 4.1% from 3.8% in June. The 2027 median rose to 4.1% from 3.6%. Essentially every year in the horizon shifted up by around 0.3 percentage points, and even the longer-run estimate ticked higher. Read properly, that says something much bigger than "rates went up today." It says the typical policymaker now expects at least one more increase before year end, and expects rates to stay higher for longer after that. The dollar does not trade today's rate. It trades the expected path, and the expected path just moved up across the whole curve. One caution worth carrying. The dot plot is not a promise. Each dot is one official's personal forecast, not a vote and not a commitment, and medians shift meaningfully between meetings. |
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4 | Why the Same Decision Hits Pairs Differently |
Yesterday the dollar firmed roughly 0.7% against both the Swiss franc and the pound. The euro and the Australian dollar also lost ground, but by different amounts. That gap is not random. A hawkish Fed widens the rate differential against every currency, but by different amounts depending on where each other central bank sits and where it is heading. Against a currency whose bank is also tightening, the effect is partly offset. Against one nowhere near moving, the full effect lands. There is a timing wrinkle this week too. The Bank of England decides today and the Bank of Japan today and tomorrow. When another major decision lands within 48 hours of the Fed, the post-FOMC drift in those pairs gets interrupted before it can establish. |
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The liquidity problem Around 2:00pm Eastern, liquidity in dollar pairs thins dramatically for a short window. Spreads widen, sometimes by a multiple of normal. Orders can fill well away from the price you expected, and stop losses in particular may execute considerably worse than where they were placed, because there is nobody on the other side at your price. Many brokers also raise margin requirements around major central bank events. None of this is improper. It is what happens when a market with reduced participation receives news everyone cares about simultaneously. The practical response is to accept that the first few minutes are structurally hostile, and to decide in advance whether you want to be exposed to them. |
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Three Decisions in Two DaysThe Fed yesterday, the BoE today, the BoJ tomorrow. FedAndMarkets covers what they signalled and what it means for seven markets. |
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5 | What Happens in the Days After |
The reaction does not end when the press conference does. There is a slower second phase over the following days, and it tends to be more orderly. Once the initial repricing settles, the market spends several sessions testing whether the new interpretation holds. A hawkish meeting followed by strong data extends the move. A hawkish meeting followed by weak data starts unwinding it. Yesterday's hawkish shift did not arrive from nowhere. August retail sales came in at 6.0% year on year against a 4.7% forecast, and import prices ran at 7.0% against 6.4% expected. Consumer demand and imported cost pressure were both hotter than the Fed wanted. What matters now is whether the data that follows confirms it. That is the drift phase, and for a swing trader it is generally more tradeable than the afternoon itself, because you get to position with a complete picture rather than an incomplete one. |
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6 | What Traders Should Watch |
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The projections before the statement text. On SEP meetings, go to the dot plot first and compare the 2026 and 2027 medians against the previous release. That usually explains the dollar's move better than anything in the statement.
The press conference, not just the release. The statement is the vetted version. The press conference is where the first move frequently gets reversed.
Statement length and language changes. Under the current Chair the statements have become dramatically shorter, yesterday's running around 130 words against roughly three times that in April. Less text means each remaining word carries more weight.
The other central bank in every pair. A hawkish Fed does not affect all pairs equally. Know what the ECB, BoE, BoJ and BoC are doing before assuming a uniform dollar move.
Whether it was already priced. Yesterday UK inflation hit a five-month high of 3.1%, exactly matching forecasts, and sterling barely reacted. A big number everyone expected is not news.
The following few days more than the following few minutes. The drift phase is slower, better informed, and far easier to participate in.
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Key TakeawaysFOMC days follow a shape. Compressed ranges while everyone waits, a violent minute into thin liquidity, a reassessment as projections and the press conference are digested, then a slower drift over following sessions. Most of the damage retail traders take happens in the second phase. Most of the opportunity sits in the fourth. Yesterday the hike was expected and would not have moved much alone. The projections shifted the whole expected path up by around 0.3 percentage points, and the dollar strengthened against every major by different amounts. |
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Get This Context Every WeekEvery Sunday, FedAndMarkets breaks down what the Fed signalled and what it means for seven markets. No signals. No predictions. Free every Sunday · 7 markets · No spam |
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The decision is the headline. The projections are the information. The press conference is the correction. And the days afterward are where the actual trade usually lives. — Fed'n Markets |
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