Macro fundamentals
The idea
Currency prices respond to changes in expected future conditions, not just the latest headline rate. A central bank can raise rates while its currency falls if the decision or guidance is less restrictive than traders expected. Compare the release with prior expectations and read the accompanying statement.
A worked example
A hypothetical 25-basis-point hike can disappoint a market positioned for 50. The event direction alone does not determine the exchange-rate response.
Try it yourself
Before an event, write separate expected, stronger and weaker scenarios without committing to a trade.
A mistake to avoid
Assuming higher rates always produce an immediate currency rally.