Understanding what drives a currency’s value is the foundation of fundamental analysis. Each of the majors answers to its own central bank, economic calendar, and political forces — and each is also pulled by the cross-rates of pairs it isn’t even part of. This page brings together the key factors behind the U.S. dollar and the four majors traded against it: EUR/USD, GBP/USD, USD/CHF, and USD/JPY.
Federal Reserve (Fed) — The U.S. central bank has full independence in setting monetary policy to achieve maximum non-inflationary growth. Its chief policy signals are open market operations, the discount rate, and the fed funds rate.
Federal Open Market Committee (FOMC) — Responsible for monetary-policy decisions, including the closely watched interest-rate announcements it makes eight times a year. The 12-member committee is made up of the 7 members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four seats that rotate annually among the presidents of the other 11 Reserve Banks.
Interest rates — The fed funds rate is the most important rate: what depository institutions charge each other for overnight loans. The Fed changes it to send clear policy signals, and those moves normally have a large impact on stock, bond, and currency markets.
Treasury — Issues government debt and makes decisions on the fiscal budget. It has no say in monetary policy, but its statements on the dollar carry a major influence on the currency.
Economic data — The most important U.S. releases are: employment (the Non-Farm Payrolls report), the unemployment rate, consumer confidence, CPI, GDP, ISM Manufacturing, industrial production, PPI, new and existing home sales, and retail sales.
U.S. stock market — The three major indices are the Dow Jones Industrial Average, the S&P 500, and the Nasdaq. The Dow has historically been the most influential on the dollar, showing a strong positive correlation as foreign investors buy U.S. equities. Three forces drive it — corporate earnings (forecast and actual), interest-rate expectations, and global considerations — and each channels its way through to the dollar.
Cross-rate effect — The dollar’s value against one currency can be moved by a pair that doesn’t involve the dollar at all. For example, a sharp rise in the yen against the euro (a falling EUR/JPY) can drag the euro down broadly, including a fall in EUR/USD.
Additional factors — Discount rate, 10-year Treasury note, 3-month Eurodollar deposits, 10-year yields, fed funds rate futures, and 3-month Eurodollar futures.
The Euro-Zone — As of January 2026, 21 EU countries use the euro: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain, and Bulgaria (the newest member, which adopted the euro on 1 January 2026). Six EU states still use their own currencies: the Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden.
European Central Bank (ECB) — Controls monetary policy for the euro-zone. Its decision-making body, the Governing Council, consists of the Executive Board and the governors of the national central banks.
ECB policy targets — The ECB’s primary objective is price stability, measured by the Harmonised Index of Consumer Prices (HICP). It weighs a broad range of economic and monetary indicators for medium-term risks to price stability, meets on a regular schedule to set interest rates, and holds a press conference after its policy meetings to explain its outlook on monetary policy and the economy.
Interest rates — The ECB’s main refinancing rate is its key short-term rate for managing liquidity. The gap between the refinancing rate and the U.S. fed funds rate is a good guide for the direction of EUR/USD.
Economic data — The most important data generally come from Germany, France, and Italy, with Germany the largest economy in Europe. Key figures are GDP, inflation (CPI and HICP), industrial production, and unemployment. From Germany in particular, the IFO survey is a widely watched gauge of business confidence. Member-state budget deficits also matter under the EU’s fiscal rules (the Stability and Growth Pact); failure to keep deficits within target can weigh on the euro.
Cross-rate effect — EUR/USD is sometimes moved by cross rates such as EUR/JPY or EUR/GBP. It is possible for EUR/USD to fall on the back of strongly positive news out of Japan that drives EUR/JPY lower.
Additional factors — 10-year government bonds, 3-month euro deposits and futures contracts, and political conditions.
Bank of England (BoE) — Since gaining operational independence in 1997 (formalised by the Bank of England Act 1998), the BoE sets monetary policy to deliver price stability and support the government’s growth and employment objectives. The price-stability objective is set by the government’s inflation target — currently 2% annual growth in the Consumer Prices Index (CPI). Despite its operational independence, the BoE remains bound to meet the target set by the Treasury.
Monetary Policy Committee (MPC) — Much like the U.S. Federal Reserve’s FOMC, the BoE’s MPC is responsible for setting interest rates.
Interest rates — The Bank’s main policy rate, Bank Rate, is used to signal monetary-policy changes on a scheduled basis. Changes usually have a large impact on sterling.
Treasury — The Treasury’s role in monetary policy has diminished markedly since 1997, but it still sets the inflation target for the BoE and makes key appointments at the central bank. The Treasury is headed by the Chancellor of the Exchequer.
Economic data — The most important UK releases are: claimant-count unemployment, the unemployment rate, average earnings, CPI (and RPI), retail sales, PPI, GDP, industrial production, manufacturing, the balance of payments, and housing.
FTSE 100 — Britain’s leading stock index. Unlike in the U.S. or Japan, the UK’s main index has relatively less influence on its currency. Even so, the positive correlation between the FTSE 100 and the Dow Jones is one of the strongest in the global markets.
Cross-rate effect — GBP/USD is sometimes moved by cross rates such as EUR/GBP and GBP/JPY. For instance, a rise in EUR/GBP (a weaker pound on the cross) can lead to a decline in GBP/USD — known in the market as “cable.”
Additional factors — Gilts (UK government bonds), and 3-month EUR/GBP deposits and futures contracts.
Swiss National Bank (SNB) — The Swiss central bank has maximum independence in setting monetary and exchange-rate policy. Uniquely among major central banks, the SNB is known to act directly in the currency market to manage liquidity: when it wishes to inject liquidity it buys foreign currency (primarily dollars) against Swiss francs, which pressures the franc. SNB officials can also move the franc through occasional remarks on liquidity, money supply, or the currency itself.
Interest rates — The SNB signals monetary policy through its policy rate; changes have a significant impact on the franc.
Economic data — The most important Swiss releases are: M3 (the broadest measure of money supply), CPI, unemployment, the balance of payments, GDP, and industrial production.
Cross-rate effect — USD/CHF is sometimes moved by non-dollar cross rates such as EUR/CHF or GBP/CHF. For example, a rise in GBP/CHF triggered by a UK rate hike could extend the franc’s weakness against other currencies, including the dollar.
Important note — Because the Swiss economy is so closely tied to the euro-zone (especially Germany), the franc has a strongly positive correlation with the euro. This shows up most clearly in the highly negative correlation between USD/CHF and EUR/USD: a sudden move in EUR/USD driven by a major fundamental factor is likely to produce an equally sharp move in USD/CHF in the opposite direction. The relationship between these two pairs is one of the strongest in the currency market.
Additional factors — 3-month EUR/CHF deposits and futures contracts.
Ministry of Finance (MoF) — The MoF is the single most important political and monetary institution in Japan, and its influence over the currency is greater than that of the finance ministries of the U.S., UK, or Germany. MoF officials frequently make statements — including verbal intervention aimed at curbing undesirable appreciation or depreciation of the yen — that carry notable impact.
Bank of Japan (BoJ) — Laws passed in 1998 gave the BoJ operational independence from the government. While control over monetary policy shifted to the BoJ, the MoF remains in charge of foreign-exchange policy.
Interest rates — The overnight call rate is the key short-term interbank rate, controlled by the BoJ’s open market operations to manage liquidity. The BoJ uses it to signal monetary-policy changes, which move the currency.
Ministry of Economy, Trade and Industry (METI) — The government body that supports Japanese industry and defends the international competitiveness of Japanese corporations. Its visibility is lower than in the 1980s and early 1990s, when U.S.–Japan trade issues were among the hottest topics in the forex market.
Economic data — The most important Japanese releases are: GDP, the Tankan survey (a quarterly business-sentiment and expectations survey), international trade, unemployment, industrial production, and money supply.
Nikkei — Japan’s leading stock index. A moderate decline in the yen usually lifts export-oriented shares, which tends to boost the index. The relationship can also reverse: a strong Nikkei can boost the yen (weighing on USD/JPY) as investment flows into yen-denominated stocks.
Cross-rate effect — USD/JPY is sometimes moved by cross rates such as EUR/JPY and GBP/JPY. A rising USD/JPY (a stronger dollar and weaker yen) can be the result of an appreciating GBP/JPY rather than direct dollar strength, often reflecting contrasting sentiment between Japan and the UK.
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