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Fed Meeting: US Dollar Volatility & FOMC Rate Decisions

Fed Meeting: US Dollar Volatility & FOMC Rate Decisions

2020-01-28 23:37:00
Rich Dvorak, Analyst
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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 19:00 GMT and placesEUR/USD, GBP/USD, USD/JPY, USD/CAD and AUD/USD at risk of experiencing above-average swings in spot prices
  • Check out this USD Forecast for detailed insight on the US Dollar ahead of the upcoming FOMC decision and follow-up press conference from Fed Chair Powell

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.

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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)

Chart of US Dollar Volatility and FOMC Interest Rate Decisions

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 US Dollar Fed Meeting

GBP/USD PRICE VOLATILITY & FOMC RATE DECISIONS

GBPUSD Price Chart US Dollar Fed Meeting

USD/JPY PRICE VOLATILITY & FOMC RATE DECISIONS

USDJPY Price Chart US Dollar Fed Meeting

USD/CAD PRICE VOLATILITY & FOMC RATE DECISIONS

USDCAD Price Chart US Dollar Fed Meeting

USD/CHF PRICE VOLATILITY & FOMC RATE DECISIONS

USDCHF Price Chart US Dollar Fed Meeting

AUD/USD PRICE VOLATILITY & FOMC RATE DECISIONS

AUDUSD Price Chart US Dollar Fed Meeting

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.

Read More: Pre-FOMC Price Action Setups for the US Dollar

FOREX TRADING RESOURCES

-- 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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