Taking a Fundamental Approach to Forex Trading

Trading the US Dollar with the FOMC Minutes

The Federal Reserve System, also known as the Fed, is the central bank of the United States. The Fed was created by the US Congress on December 23, 1913 with the signing of the Federal Reserve Act by President Woodrow Wilson. Under this act, the Fed main responsibility is to "promote effectively the goals of maximum employment, stable price, and moderate long term interest rate". In order to achieve that, the Federal Open Market Committee (FOMC) meets eight times each year. The purpose is setting the future course of overnight interest rate. Unlike other central banks of the developed world, the Fed doesn't have an explicit quantifiable inflation targets. Many economists have criticized the Fed over this issue. Thus, the impressive success of the Fed in the recent years has boosted the Fed's approach of "non- quantifiable inflation targets".

FOMC STRUCTURE:

1)	Board of Governors: 7 members appointed by the President and approved by the Senate
2)	The President of the Federal Reserve Bank of New York
3)	4 of the other 11 Federal Reserve banks Presidents (served on rotating basis)
4)	The other presidents of the Federal Reserve banks may attend the FOMC meetings but they can't vote on the monetary policy issues (non-voting members).

Whether the Fed tends to increase, decrease, or maintain interest rate, the decision always has a direct impact on the US Dollar and this is why...

•	By increasing interest rate, the Fed is literally selling US government securities to major financial dealers who in turn would pay by transferring money to the Fed account. This would decrease the supply of the US Dollar in the banking system and hence appreciate its value.
•	By cutting interest rate, the Fed is literally buying US government securities from major financial dealers who in turn would get paid by transferring money into their accounts from the Fed. This would boost up the supply of the US dollar in the banking system and hence depreciate its value.