How Monetary Policy News Releases Affect Forex Market

Learn more about impact of monetary policy on forex market. Watch our latest video on how monetary policy news affect the forex market and get profitable trading results!

Impact of monetary policy on forex market | monetary policy release

Monetary policy is set in motion by a central bank of a sovereign nation. In other words, the central bank will adjust interest-rates, perhaps do more quantitative easing, shore up the banking system, or many other things to affect the economy as well as currency values.

Without a doubt, the most important monetary policy release will be the interest-rate statement. Typically, central banks move in small increments when it comes to either raising or cutting interest rates. The markets trying to guess as to what the central banks are going to do ahead of time, but occasionally they surprise the markets, reading an extraordinarily large of volatility. In general, the market is due tends to get it right.

Monetary policy releases come out in a regular scheduled manner, and as a result will quite often make the markets fairly quiet ahead of time. If a particular interest-rate announcement has caught the attention of the traders in the Forex markets for example, it’s likely that a couple of days ahead of time the markets will calm down. It’s because everybody is simply waiting to get an idea of what happens next. Keep in mind that interest-rate statements normally have a press conference afterwards, and at that point in time traders trying to guess or parse the words from central bankers to see where they may go next as far as interest rates are concerned.

Keep in mind that monetary policy releases can also be sudden. They don’t necessarily have to be when they are scheduled. For example, the Federal Reserve did several extraordinary moves during the last financial crisis in order to prop up several banks. Because of this, it is a bit of a mixed bag, but ultimately the interest-rate expectations and announcements are by far the largest factors in the marketplace when it comes to monetary policies.