Federal Reserve

The Federal Reserve System, more commonly known as the Fed, represents the central banking system of the United States.

Like other central banks globally, the Fed is responsible for monetary policy, in this case in the US.

The Fed is one of the most watched and followed entities for forex traders, given its material impact on the US dollar.

Founded initially in 1913, the Fed was created to perform a wide range of functions.

This includes stabilizing and maintaining flexible monetary policy in the US while buttressing a financial system for the country.

Its general duties are setting and guiding monetary policy and overseeing effective economic operation, both of which are at the service of the public interest.

How the Federal Reserve Affects Forex

The Fed can materially impact the US dollar by virtue of the interest rate it sets, measured by the Board of Governors of the Federal Reserve System.

The current interest rate and the expectations of future interest rate changes can influence the value of the US Dollar.

For example, if traders anticipate a change in interest rates based on announcements from the Board of Governors, this can cause the US dollar to appreciate or depreciate in value against other currencies.

Forex traders should always be aware of meetings and announcements from the Fed and should keep track of developments within the central bank.

Ultimately, the Federal Open Market Committee (FOMC) holds eight regular meetings per calendar year, where policies and interest rates are discussed and agreed upon.

The best course of action is to keep up with news ahead of these meetings as a forex trader to make predictions about interest rates, and whether to buy or sell the US dollar.