What moves a currency when a central bank changes its rate? The obvious answer is the rate itself. A higher rate pays more, so money comes in and the currency goes up. I suppose that is an answer too. But for me the better answer came on 5 November 2026, when the Bank of England raised Bank Rate to 4.00% and the pound did almost nothing.
GBP/USD was at 1.3472 at 12:15 GMT, a few minutes after the decision. The next morning it traded at 1.3406. The bank raised rates for the first time in three years, and the pair lost 66 pips — about $660 on one standard lot, $6.60 on 0.01 lot. This is the whole subject of interest rates and forex in one example. The market had expected the hike for weeks — so the hike itself was not news.
Six banks decided in six weeks. Here is what each one did and what actually moved the pair.
| Bank, date | Quyết định | What moved the pair |
|---|---|---|
| Fed, 28 Oct | Held 3.75–4.00%, vote 10–2 | Two votes for a hike — the dollar read them as a December signal |
| Bank of Canada, 28 Oct | Raised to 2.50% | Almost nothing — fully priced in |
| ECB, 29 Oct | Held 2.50%, unanimous | Almost nothing — a hold was expected |
| Bank of Japan, 30 Oct | Held 1.25%, vote 8–1 | One line — inflation is now at the 2% target |
| RBA, 3 Nov | Raised to 4.85%, vote 6–3 | Three votes to hold, after a unanimous hike in September |
| Bank of England, 5 Nov | Raised to 4.00%, vote 8–1 | One vote for 4.25% and a 5% inflation forecast |
Interest rates and forex
Which rate? The policy rate — the rate a central bank pays or charges commercial banks overnight. The Fed calls it the federal funds rate, the ECB the deposit facility rate, the Bank of England simply Bank Rate. Each one is a price for holding that currency for a year.
Hold dollars and you get 3.75–4.00%. Hold yen and you get 1.25%. The difference is why USD/JPY trades near 157 and why the market stops for every decision.
This is the relationship between interest rate and forex in one sentence: a currency is a loan, and the rate is what the loan pays. A rise in the rate makes the loan pay more. More people want it, and they need to buy the currency first. A cut does the opposite. So far every guide agrees, and so do I.
How do interest rates affect forex in the first hour after a decision? Not through the rate number. The two-year government bond yield moves first, because that yield is the price of the next four or five decisions. Then the money moves, and only then the pair. The chain below is the one I check on every decision day.
A few words that readers ask about, because interest rates and forex come with their own slang. Hike meaning in forex — a rise in the policy rate, usually 25 basis points, which is a quarter of one percent. A cut is a fall of the same size. A hold is no change. Forex interest rates, in trader talk, are simply the policy rates of the two currencies in your pair, and the gap between them.
The gap, not the level
Most interest rate forex guides say the same thing: higher rate, stronger currency. On my account this is only half true, and the half that is wrong costs money. Canada raised its rate to 2.50% on 28 October — the Canadian dollar barely moved. The Bank of England raised to 4.00% on 5 November — the pound sat at 1.347, then fell. Two hikes, two flat currencies.
So what moves the pair? The result minus what the market expected. A hike that futures priced at 90% is a surprise of 10%, and the pair moves on the 10%, not on the hike. A hold that nobody expected is a full surprise.
The Fed on 28 October held at 3.75–4.00%, but two members voted to raise — the surprise lived in the vote, not in the rate. The next Fed decision is 9 December, and after that vote the futures market leaned towards a rise.
This is why I read the vote split before the headline. An 8–1 hike with the one vote for a bigger hike means one thing — more to come. A 6–3 hike with three votes to hold, as in Australia on 3 November, means the cycle is close to its end. The words hawkish and dovish describe this lean, and I wrote a separate page on diều hâu vs ôn hòa trong tháng Mười.
The pound example in money. GBP/USD touched 1.3500 on 4 November, the day before the decision, and 1.3395 on 6 November. That is 105 pips — about $1,050 on one standard lot, $10.50 on 0.01 lot. If you need the arithmetic, it is on the page about pip là gì.
The point is the direction. The currency with the fresh hike fell, because the hike was old news and the dollar had its own reasons.
Interest rate differentials of the major currencies
A differential is just the gap between two policy rates. It matters in two ways. The first — it sets the direction money wants to flow over months, not minutes. The second — it is paid out every night as swap. This is the interest forex traders collect or pay while a position is open, and it sits in your account whether you think about it or not. Here are the gaps in five major pairs on 6 November 2026.
USD/JPY has the widest gap, 2.63 points, and the pair trades near 157. GBP/USD has almost none — 0.13 points, so the swap there is close to zero either way. AUD/USD is the interesting one. With the cash rate at 4.85% against 3.75–4.00% in the US, the Australian side now pays more, and I had not seen that gap in the Australian dollar’s favour for years.
Check the swap column in your own terminal. Brokers add their own margin, and the numbers differ from one to the next.
The carry trade is built on this gap: borrow the low-rate currency, hold the high-rate one, collect the difference. On USD/JPY that is about 2.6% a year without leverage. Is that a lot? Compare it with three weeks of price. GBP/USD went from 1.3137 on 14 October to 1.3500 on 4 November — about 2.8%, more than a year of the widest carry in the majors.
I do not know whether the yen gap starts to close in December, and neither does anyone else. So I treat carry as a bonus, not as a plan.
Six banks, one year
Every one of the six banks in the table raised rates in 2026. Why all at once? Energy prices. The Bank of England said on 5 November that there is now enough inflationary pressure in the pipeline from energy prices to warrant a rise, and it expects inflation near 5% by the middle of 2027, from 3.5% today.
The euro area had 3.8% inflation in September, with energy prices up 18.9% on the year. Japan said for the first time since 2013 that underlying inflation has reached its 2% target. Australia raised five times — the highest cash rate since 2008.
For a pair, the slope of one line means little — the distance between two lines is what changes the price. AUD/USD had the US line above it in January and below it in November.
EUR/USD lost only a quarter point of its gap, from 1.63 to 1.38, because the ECB raised twice and the Fed once. That is why the euro moved more on the week’s US news than on its own bank, and the Australian dollar did the opposite.
The December calendar is short. The Fed and the Bank of Canada decide on 9 December — the ECB and the Bank of England on 17 December, with the Bank of Japan in the same month. I will come back to this page after those dates if the picture changes.
Interest rate trading on my account
Của chúng tôi Danh mục đầu tư Forex V trades 14 pairs on the H1 chart, and the live account runs on our YouTube channel. The robot has no idea that 5 November was a decision day. It has a spread filter, and that filter does the work: when the spread on GBP/USD widens in the minutes around 12:00 GMT, the entry conditions fail and the robot waits.
I do not change the parameters around a decision. A filter that reads the market is steadier than a hand that reads the news.
What I do by hand is small. I read the vote split and the one new sentence in the statement, and I look at the swap column in the terminal for the pairs that will be held overnight. That is my interest rate trading, and it does not take long.
Interest rates trading as a separate strategy — enter at 12:00:01 on the number — is a game for people with a faster server than mine. And I have a good server.
One more thing. I do not know whether the Fed raises on 9 December. The two dissents say yes, the futures market leaned that way after 28 October, and the statement said the committee wants more information first — three signals, two directions. If you must hold a dollar pair through that day, hold a size that lets you be wrong.
Rate, expectation, vote, gap, swap — all of this is one subject, and the interest rates forex traders watch are only the first item on the list. The more of the decision you have read before the price moves, the steadier your trade after it. Next numbers: 9 December.
Decisions and quotes above are from the primary documents: Federal Reserve, FOMC statement of 28 October 2026; ECB, monetary policy decisions of 29 October 2026; Bank of Japan, statements on monetary policy 2026; Bank of England, Bank Rate decision of 5 November 2026; Bank of Canada, rate announcement of 28 October 2026. GBP/USD levels are the ones quoted by news wires on 4–6 November 2026. Rates and prices change; the figures here were checked on 6 November 2026.
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