Currencies do not move because a chart pattern completed. They move because capital is repriced, and the price of capital is the interest rate. Everything in this playbook comes back to one question: where is the market pricing rates six months from now, and how does that compare with last week?
The differential, not the level
A common mistake is watching one central bank in isolation. An FX pair is a ratio, so what matters is the gap between two curves. The euro can rally against the dollar while the ECB is cutting, provided the Fed is expected to cut faster. Read every rate decision as a relative statement.
What actually moves the number
Expectations shift on data, and only a handful of releases carry enough weight to reprice a curve. In rough order of impact:
- Inflation prints (CPI, core PCE) - the single largest driver of repricing.
- Labour data - payrolls, unemployment, wage growth. Wages matter more than the headline.
- Central bank meetings and the language around them, especially the dot plot and any change to guidance.
- Growth surprises - PMIs and retail sales, which mostly matter when they contradict the current narrative.
Note the asymmetry: a print that confirms what the market already expects moves very little. A print that contradicts it moves a lot. Position for surprises against consensus, not for the number itself.
Where this breaks down
Rate differentials explain medium-term trends, measured in weeks and months. They explain almost nothing intraday, and they lose to flows entirely during risk events. When a safe-haven bid arrives, the dollar and the yen can rally straight through an unfavourable rate story, and staying in a macro position through that is how a good thesis becomes a bad trade.
The macro tells you which direction deserves the benefit of the doubt. It does not tell you where to put the stop.
A weekly routine
- Sunday: mark the coming releases and note current market pricing for each central bank.
- After each major print: write one line on whether pricing shifted, and in which direction.
- Friday: review whether the moves matched the repricing. Where they did not, ask what flow explained it.
This takes about twenty minutes a week and turns macro from background noise into a filter you can act on.