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FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

2019-10-29 22:03:00
Research, Research Team
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FOMC RATE DECISIONS & US DOLLAR VOLATILITY: EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, USD/CHF

  • Fed meetings have historically sparked serious volatility in the US Dollar
  • A FOMC rate decision is due Wednesday at 18:00 GMT and puts EUR/USD, GBP/USD, USD/JPY, USD/CAD and AUD/USD at risk of experiencing changes in spot prices that are above average
  • Join DailyFX Chief Currency Strategist John Kicklighter for free live webinar coverage of the upcoming FOMC rate decision

Forex traders should be on high alert whenever there is a Federal Reserve meeting on deck judging by historical US Dollar volatility surrounding a FOMC interest rate decision. Data pulled on spot EUR/USD, GBP/USD, USD/JPY, USD/CAD and AUD/USD since 2008 reveals that USD price action is particularly elevated surrounding a Fed monetary policy update.

In fact, the average change (absolute value) in the 24-hours before and 24-hours after a FOMC rate decision is noticeably higher across the major US Dollar currency pairs listed in the table below when compared to average change on any given day.

FOMC RATE DECISIONS & AVERAGE US DOLLAR PRICE CHANGE (ABSOLUTE VALUE)

US Dollar Price Chart Volatility Around Fed Meetings

Another way to reflect US Dollar volatility around regularly held Fed meetings is by capturing the daily trading range on a FOMC decision day and comparing it to its respective 30-day average true range (ATR). Once again, we find that the US Dollar typically experiences above normal episodes of volatility in response to FOMC rate decisions.

EUR/USD PRICE VOLATILITY & FOMC RATE DECISIONS

EURUSD Price Chart Volatility and FOMC Rate Decisions

GBP/USD PRICE VOLATILITY & FOMC RATE DECISIONS

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

USD/JPY PRICE VOLATILITY & FOMC RATE DECISIONS

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

USD/CAD PRICE VOLATILITY & FOMC RATE DECISIONS

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

USD/CHF PRICE VOLATILITY & FOMC RATE DECISIONS

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

AUD/USD PRICE VOLATILITY & FOMC RATE DECISIONS

FOMC Rate Decision: US Dollar Vulnerable Around Fed Meetings

The outcome of the analysis is the same irrespective of how the data is crunched to reflect US Dollar volatility surrounding a FOMC rate decision: the central bank’s monetary policy updates serves as a serious catalyst for USD price action. That said, forex traders should thoroughly consider implementing stringent risk management techniques when trading the US Dollar around a Fed meeting – like placing tighter stops or trading smaller position sizes.

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-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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