Why Do Currencies Move Before Central Bank Decisions? Anticipation and OIS Pricing Explained

Educational content. This article explains how expectations about interest rates move currencies before a central bank meeting and how overnight index swap (OIS) pricing measures them. It does not constitute investment advice or a recommendation. CFD trading carries significant risk of loss and may not be suitable for all investors.

Currencies move before central bank decisions because the exchange rate prices the expected path of interest rates, not the announcement itself. Every data release or speech that changes the odds of a rate move changes the price in advance. OIS rates measure those odds: a market-implied rate 8.75 basis points below the policy rate means a 35% chance of a 25-basis-point cut.

This article is about the lead-up, not the announcement. It explains why the drift happens, shows the arithmetic that converts OIS pricing into a probability and into a "surprise", and gives the order of magnitude of the move in pips and dollars. The figures are arithmetic, not forecasts. For the reaction on the day, see how FOMC meetings move the US dollar.

Why Does a Currency Move Before the Decision?

A currency moves before the decision because its price is the market's estimate of future interest rates, so the price must adjust as soon as that estimate changes, not when the central bank confirms it.

The mechanism has three steps.

1. Rates drive demand for a currency. Higher expected returns on a currency's deposits and bonds attract capital; lower expected returns repel it. The link between rate gaps and exchange rates is covered in forex central banks explained.
2. Expectations are what traders can trade. Nobody can trade on the decision before it is announced, but anyone can trade on the probability of it. The currency follows the probability.
3. The probability changes every day. Inflation data, jobs data, and speeches by officials shift the odds. Each shift is a small repricing, and the sum of those shifts is the "pre-decision drift".

By the meeting date, most of the repricing has usually already happened. This is the idea behind "priced in", which is explained in forex central banks explained and in how CPI affects the US dollar. This article does not repeat it. It answers the question those pages leave open: how do you measure what is priced in?

What Is OIS Pricing and Why Do Traders Use It?

An overnight index swap (OIS) is a contract that exchanges a fixed interest rate for the compounded overnight rate over a set period, so its fixed rate is the market's average expectation of the policy-linked overnight rate for that period.

The floating leg follows an overnight benchmark that tracks the central bank's policy rate closely: SOFR for the US dollar, the euro short-term rate for the euro, SONIA for sterling, and TONA for the yen. If traders expect a cut, the fixed rate for periods after the meeting falls below the current overnight rate. If they expect a hike, it rises above.

Two properties make OIS useful for reading expectations:

• It isolates rate expectations. An OIS has almost no credit risk because no principal is exchanged, so the rate is close to a pure expectation of the policy path plus a small premium.
• It is read as a difference. The difference between the OIS rate for the period after a meeting and the current policy rate is the expected change, in basis points (1 basis point is 0.01%).

Futures on policy rates, and public "rate probability" trackers built on them, express the same idea. Traders on a CFD platform do not trade OIS directly. They see its effect in the exchange rate and in the economic calendar's consensus figures.

How Do You Turn OIS Pricing Into a Probability?

Divide the expected change in the rate by the size of the move being considered: an implied change of -8.75 basis points with a 25-basis-point cut on the table equals a 35% probability of that cut.

The calculation, using hypothetical figures:

• Current policy rate: 4.00%.
• A meeting takes place on day 10 of a 30-day month, so the month has 10 days at the old rate and 20 days at the new one.
• The 1-month OIS rate for that month is 3.9417%.

Because the OIS rate for the month blends the days before and after the meeting, first isolate the rate for the days after it:

Post-meeting rate = (30 x 3.9417 - 10 x 4.00) / 20 = (118.251 - 40.00) / 20 = 3.9125%

The expected change is 3.9125 - 4.00 = -0.0875 percentage points, or -8.75 basis points. If the only outcomes are a hold (0) and a 25-basis-point cut (-25), the probability of the cut is:

P(cut) = 8.75 / 25 = 35%

Two cautions apply. First, the formula assumes only two outcomes; real markets also price larger moves and later meetings, so the number is an approximation. Second, the OIS rate includes a small term premium, so published probabilities are estimates, not facts.

How the Expected Rate Maps to a Cut Probability

The mirror image applies to hikes: a positive implied change divided by the size of the hike gives the probability of the hike.

How Does a Shift in Probability Become a Price Move?

A shift in probability becomes a price move when it changes the expected rate gap between two currencies, because the exchange rate is a ratio of the two currencies' expected returns.

Consider a pair such as EURUSD. If the market moves from a 35% to an 80% probability of a Fed cut, the expected US rate falls by 0.45 x 25 = 11.25 basis points. If nothing changes for the euro, the expected rate gap between the euro and the dollar narrows in the euro's favour by that amount, and EURUSD tends to drift higher. The tendency comes from the rate-gap logic; the size and persistence of the move are not predictable, and other forces (risk sentiment, the euro's own expectations) can overwhelm it.

The sensitivity is higher when the market is uncertain. A move from 0% to 10% probability changes the expected rate by 2.5 basis points; a move from 35% to 80% changes it by 11.25. Pairs react more to repricing in the middle of the range than at the extremes, where there is little left to reprice.

What Does the Drift Cost or Earn Per Lot?

Pip value depends on the pair's contract size and quote currency. The table below converts a pre-decision drift into account-currency terms for 1 standard lot, using the contract size from the Vanto feed.

Source: Vanto feed snapshot, 10 October 2026. For pairs where USD is not the quote currency, the pip value is converted at the snapshot price and changes with the exchange rate. A pip is 0.0001, or 0.01 for USDJPY; see what is a pip.

The table shows magnitude only. A 40-pip drift can go in either direction, and on a leveraged CFD position the loss side is as large as the gain side. Lot size and its relation to risk are explained in what is a lot.

What Is the "Surprise" on Decision Day?

The surprise is the actual decision minus the expected decision. It is measured in basis points, and it is the part of the announcement that the exchange rate has not yet priced.

Expected change = outcome size x probability. With a 25-basis-point cut priced at 80%, the expected change is -20 basis points. Then:

• A cut occurs (-25 bp): surprise = -25 - (-20) = -5 bp. A small surprise towards easier policy.
• A hold occurs (0 bp): surprise = 0 - (-20) = +20 bp. A large surprise towards tighter policy than expected.
• A 50 bp cut occurs: surprise = -50 - (-20) = -30 bp. A large surprise towards easier policy.

The table explains an observation that confuses many traders: the same decision can be a large surprise or none at all, depending on what was priced. A cut that is 100% priced has a surprise of zero, so the announcement itself carries no new information about the rate. The rest of the reaction comes from the guidance that accompanies it, which is covered in hawkish vs dovish.

What Happens to Spreads and Execution Around the Announcement?

Quotes tend to get worse around scheduled central bank announcements: liquidity providers widen the spread and thin their depth because the price can jump between two ticks. The effect is a feature of the event, and it is independent of whether the decision is expected.

For a CFD trader this has three practical consequences:

1. The spread is a larger cost. A wider spread raises the price a position must move before it breaks even. How the spread works is explained in what is the spread in trading.
2. Orders can fill away from the requested price. A stop-loss becomes a market order when triggered, and in a fast market the fill can be worse than the stop level. That difference is slippage.
3. Leverage magnifies the result. On a margined position, an adverse gap can reduce equity quickly. With a margin call at 100% and a stop-out at 50% (both account types), the platform closes positions when the margin level falls to that level; see what is the stop-out level.

The snapshot of live quotes cannot show the widening, because it is a single moment taken outside an announcement window. A quote taken at one time says nothing reliable about the quote during an event, so this article states the mechanism without figures.

How Do Swap Signs Reflect the Same Expectations?

The sign of a pair's overnight swap reflects the current gap between the two currencies' policy rates, so a change in the rate gap shows up in financing costs as well as in the price. The overnight financing mechanism is explained in what is swap in trading.

In the Vanto feed snapshot of 10 October 2026, the sign pattern across seven major pairs was:

Source: Vanto feed snapshot, 10 October 2026. Signs only; the rates change over time.

The pattern is structural. A pair that pays a credit on one side and a debit on the other is showing the rate gap between its two currencies; a pair with a debit on both sides, such as GBPUSD here, shows that the rate gap alone does not decide the sign. When a market starts pricing a policy change, the sign can change after the policy rate does, which is a lagging confirmation, not a prediction. The carry mechanism behind this is in the carry trade explained.

When Does the Anticipation Pattern Break?

The pattern breaks whenever the expectation is wrong, thin, or moves for reasons that have nothing to do with the central bank. Four cases are common.

1. The reversal. A pair that drifts for days on a rising cut probability can reverse in minutes when an official signals caution. Anticipation is not a one-way street, and a position held into the meeting carries the full risk of that reversal.
2. The "sell the fact" reaction. Positioning that ran ahead of the decision can unwind even when the decision matches the expectation, because the buyers who anticipated it have no one left to sell to. The direction after a fully priced event is not fixed.
3. The off-centre surprise. The rate decision can match expectations while the guidance, the vote split, or the projections do not. The move then comes from the second layer of information, not the rate.
4. The competing driver. Risk sentiment, an oil price shock, or a rival central bank's decision can dominate. A pair moves on the net of all expectations, and the rate gap is one of them. For the relation between a falling stock market and the dollar, see why the US dollar rises when stocks fall.

A further mistake is reading a published probability as a forecast. An OIS-implied probability is the price of a hedge, not a statement about what the central bank will do, and it changes with every release.

How Does the Timing of the Session Change the Picture?

A decision made in one time zone is traded across all of them, so the pre-decision drift can start in the Asian session even for a decision announced in the US evening. Southeast Asian and Japanese traders often see the early repricing in thin liquidity, followed by a different pace when London and New York join. The hours when each centre is active are shown in forex trading sessions.

For the data releases that most often shift the probabilities in the days before a meeting, see how CPI affects the US dollar and how NFP affects the US dollar.

Frequently Asked Questions

Why do currencies move before the central bank announces its decision?

Because the exchange rate prices the expected rate path, not the announcement. Each release or speech that changes the odds of a move changes the price immediately, so the drift before the meeting is the sum of those small repricings.

What does "priced in" mean in OIS terms?

It means the OIS-implied rate already reflects the expected decision. If the implied change is -20 basis points and the bank cuts 25, only the 5-basis-point difference is new information for the market.

Can I read the probability of a rate decision myself?

Yes, as an approximation. Subtract the current policy rate from the OIS rate for the period after the meeting and divide by the size of the move: -8.75 basis points over a 25-basis-point cut is a 35% implied probability. Published trackers do the same with extra adjustments.

Does a fully expected decision mean no price move?

Not necessarily. The decision itself carries no surprise, but the guidance, the vote split, and the projections can. Positioning that ran ahead of the event can also unwind afterwards, so a quiet announcement does not guarantee a quiet market.

Why do spreads widen around central bank announcements?

Liquidity providers cannot know where the price will be a second after the release, so they quote wider and with less depth. The widening raises trading costs and makes slippage on stop-loss and market orders more likely.

Is trading before the decision riskier than trading after it?

Both carry risk, in different forms. Before the decision, the risk is a reversal if the expectation changes. At the announcement, the risk is wider spreads and gaps. On leveraged CFD positions, losses are amplified as much as gains, so position size matters more than the timing.

Calculate the Numbers for Your Own Position

Use the Vanto trading calculator to see the pip value, margin, and profit or loss for a given pair and lot size before an event. Pip values and contract sizes there come from the live feed, so the arithmetic in this article can be repeated for any position size.

Risk warning. Trading securities, futures, options, and contracts for differences are complex financial instruments that require knowledge and understanding. Prices can fluctuate significantly and securities may become valueless. Investors may incur losses exceeding the potential for profits. Trading on margin can result in losses greater than the amount initially deposited. Past performance is not necessarily a guide to future performance. The information in this article is for educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Consider whether CFD trading is appropriate for your circumstances and seek independent advice if necessary.