Last updated: 4 November 2026. Market conditions change quickly; figures in this article reflect information available on this date.
After cutting interest rates in 2024 and 2025, the US Federal Reserve has changed direction. In September 2026 it raised rates for the first time since 2023, and at its October meeting two policymakers voted for another increase. For forex traders, a central bank that is tightening again is one of the most important things to understand. This guide explains what has happened, why, and how Fed decisions move currency markets.
Risk warning: Trading forex, gold and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.
What the Fed has done in 2026
| Meeting | Decision | Key detail |
| 16 September 2026 | Raised rates by 0.25% to 3.75%–4.00% | First hike since 2023; all policymakers backed it |
| 28 October 2026 | Held at 3.75%–4.00% | Split 10–2 vote; Lisa Cook and Beth Hammack wanted another 0.25% hike |
| Next: December 2026 | To be decided | The Fed’s projections and futures markets point to a possible further hike |
At his October press conference, Fed Chair Kevin Warsh gave little guidance about the next move, saying more information would help decide the policy stance. He also announced a change to how the Fed works: from 2027 it plans to consider rate changes at fewer of its eight annual meetings (seven in 2027 and six in 2028), using the other meetings to discuss longer-term issues.
Why the Fed is hiking again
- Stubborn inflation: core PCE inflation, the Fed’s preferred measure, has run above 3% throughout 2026, well above the 2% target. September PCE inflation rose 0.5% on the month and 3.6% from a year earlier.
- Energy prices: supply shocks pushed oil and energy costs higher, feeding into broader prices.
- A resilient economy: strong growth and a firm labour market gave the Fed room to tighten. US third-quarter GDP growth came in above expectations.
How Fed rate hikes affect currencies
Interest rates are one of the biggest drivers of exchange rates. When the Fed raises rates, or markets expect it to, US dollar assets offer higher returns. That can attract capital into the dollar. The key word is expectations: markets move on what they think will happen next, so a widely expected hike may already be “priced in” before the announcement.
- Rate differentials: if US rates rise while the ECB or Bank of Japan stay on hold, the gap in yields can support the dollar against the euro or yen. Read How interest rates and central banks move forex markets.
- Surprises matter most: a hike that markets did not expect, or hawkish comments about future hikes, usually move prices more than an expected decision.
- Risk sentiment: higher rates can weigh on stocks and riskier currencies such as the Australian and New Zealand dollars.
- Gold: higher rates raise the opportunity cost of holding gold, which pays no interest. This has been one factor in gold’s fall in 2026.
What it means for major pairs
- EUR/USD: sensitive to the gap between Fed and ECB policy. A Fed that keeps hiking while the ECB holds can weigh on the pair, but European data and ECB comments matter just as much.
- USD/JPY: heavily driven by the difference between US and Japanese rates, and by the risk of Japanese government intervention when the yen weakens sharply.
- GBP/USD: depends on how the Bank of England’s path compares with the Fed’s.
- AUD/USD and NZD/USD: often fall when higher US rates hurt global risk appetite.
These are tendencies, not rules. Many other factors, including politics, energy prices and unexpected data, can override them.
How to trade around Fed decisions
- Know the calendar: FOMC decisions are announced at 2:00 pm US Eastern time, followed by the Chair’s press conference 30 minutes later. Inflation (CPI, PCE) and jobs reports are also big events.
- Expect volatility: spreads can widen and prices can jump in seconds, so stop-losses may be filled at worse prices.
- Reduce position size or stay out of the market during the announcement if you are a beginner.
- Watch the dot plot and statement wording: changes in projections and phrasing often move markets more than the decision itself.
- Avoid over-leveraging: a sudden move against a large position can cause losses quickly. See Forex leverage, margin and position sizing.
Key dates to watch
- US CPI and PCE inflation releases each month.
- The US jobs report (usually the first Friday of the month).
- The December 2026 FOMC meeting, where markets are watching for a possible further hike.
Summary
The Fed’s return to rate hikes in 2026 is driven by inflation running above target. Higher US rates and expectations of further tightening can support the dollar and weigh on gold, but markets move on surprises, not just decisions. If you trade around Fed events, use small positions, wide enough stops and strict risk management.
Risk warning: Trading forex, gold and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.
Sources
- CNBC: Fed rate decision, September 2026
- CNN: Fed keeps rates unchanged, October 2026
- Federal Reserve: Chair Warsh press conference, 28 October 2026
- CNBC: Five takeaways from the October decision
- J.P. Morgan: What’s the Fed’s next move?