• AUD/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/GBP
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/JPY
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • GBP/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/CAD
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/CHF
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/JPY
    SELL
    -
    BUY
    -
    CHG
    -

How the Fed lost control of interest rates

The Fed expects their actions to influence interest rates across the board. With Treasury yields roaring through multi-year highs, it's worth investigating how much sway the Overnight rate still has.
Source: Bloomberg
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Key points

  • Since 2020, the FOMC has hiked rates over 5%
  • Overnight rates are expected to lower about 1% by the end of 2024*
  • Short-term yields have stabilized while 10YR yields hit decade-long highs

What has the Fed done to curb inflation?

Since the pandemic, the FOMC has been extremely active - both cutting rates to accommodate the global shutdown, and raising rates once the US economy came roaring back. US inflation rose to its highest level since the 1980's last year, causing the Fed to raise rates 11 consecutive meetings to 5.5% - its highest level in 22 years. After leaving rates unchanged in its past two meetings and inflation seemingly past its peak, markets are currently predicting the Overnight rate to fall about 1% by the end of 2024.*

Does the Fed affect mortgage rates?

While the Fed does not directly control commercial rates, the Fed expects Treasuries and other interest rates to be influenced by the Overnight interest rate. In theory, shifting the Overnight rate shifts the overall economy toward their desired goal, either encouraging or restricting growth to maintain steady inflation.

However, recently rates like the 10-year Treasury yield have been moving independently of the Overnight rate. Overnight rates have stabilized since July and yields in the 10-year have continued rising - even hitting 5% for the first time since 2007. This has caused fixed-rate mortgages and other rates tied to the 10-year to rise further contrary to the Fed's actions.

*Projections based on the CME's FedWatch tool for 12/18/24

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

var i18n= i18n || {}; i18n['accordion.less']='less';i18n['accordion.more']='more';

Why do interest rates matter to forex traders?

Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.

This information has been prepared by tastyfx, a trading name of tastyfx LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. tastyfx accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.