FedWatch Probabilities: What Is the Dollar Pricing In?

A rate-cut probability rises from 40% to 60% on a US trading screen. That is a large change in the headline and a small change in the expected rate if the alternatives are only a quarter point apart. A meeting near the end of the month makes the change in the futures contract smaller still.

Start with CME FedWatch methodology and dated futures screen. Look for number of calendar days at each effective rate. The calculation you want is the expected policy rate implied by a monthly average. A common reason for a discrepancy is multiple possible moves or a changed effective-rate spread. The first worked figures below are illustrative. The historical section identifies the actual observations used and lets you change one assumption at a time.

Work backward from the average

Consider an invented 30-day month with 18 days at 4.33% and 12 days subject to the new rate. If the only possibilities are no change or a 25-basis-point cut, a 60% cut probability implies a post-decision expectation of 4.18%. The whole-month average is (18 × 4.33 + 12 × 4.18) / 30 = 4.27%. The illustrative futures price is 100 minus 4.27, or 95.73.

Reverse the arithmetic. Subtract the known 18-day contribution from 30 times the implied average, then divide by 12. The distance from 4.33 to the implied post-decision 4.18 is 15 basis points. Fifteen divided by 25 gives 60%. These are simplified odds conditional on two outcomes and a stable effective-rate spread. Use CME’s methodology for its actual multi-meeting calculations.

Read the change in expected rates

A shift from 40% to 60% in this case lowers the expected post-decision rate by five basis points. Across the full month it lowers the contract-implied average by two basis points. If a cut was already almost fully expected, an actual cut can produce very little surprise. A statement about future meetings may move longer maturities more.

To study the dollar, capture the contract month, timestamp, target probabilities and the other currency’s own rates. Allow for weekends, holidays and the effective date of the decision. A historical monthly effective-rate average can check what ultimately happened. It cannot recover the market’s beliefs without an archived contemporaneous futures price.

When one price supports several probability stories

Suppose the implied average post-meeting change is minus 12.5 basis points. Half weight on no change and half on a quarter-point cut produces that mean. Three quarters on no change and one quarter on a half-point cut also produces it. The expected price alone does not identify the probability of at least one cut unless you specify which outcomes are allowed. More contracts and a coherent term-structure model add information.

Probabilities quoted seconds apart can also draw on different reference points. A last trade in a thin contract could be stale while the bid and ask have moved. Retain the timestamp and market quality of the quote, then separate a genuine shift in price from a change in displayed rounding. Time-stamp the FX reaction independently and keep any concurrent US or Japanese policy communication in the record.

How to check the figures yourself

Write a separate probability equation for the exact pair of outcomes you are considering. The probability of a 25-basis-point cut under a binary model can change if 50 basis points also has a meaningful weight. A single expected value cannot uniquely determine three unrestricted probabilities.

After the meeting, compare the observed effective rate from the New York Fed with the earlier assumed post-meeting rate. This checks your mapping. Do not overwrite the old expectations with the realized number. A useful archive preserves what traders priced and what actually happened as two independent records.

Historical cases and a reproducible dollar comparison

To see what changes the dollar decision, take one clearly defined exposure: JPY 2,486,000 cash flow accompanying a Fed study. The historical column follows USD/JPY, using daily Federal Reserve exchange-rate observations distributed through FRED as DEXJPUS. The exercise uses 96 complete or selected calendar months from 2017-01 through 2024-12. The fixed research window runs from January 2017 through December 2024. Rates are publicly observed. Retail fees, contract terms and decision rules in the examples are assumptions.

Divide the fixed yen amount by observed yen per dollar. This isolates the currency consequence for a US business watching FedWatch. It leaves the monthly futures-implied probabilities out of the translation, so a reader can investigate whether the two actually moved together.

The modeled output is measured in US dollars. Its sign and units are essential when you work backward from a chart. Write the initial reference, the final reference, their dates and the modeled result in separate columns. Calculate with unrounded inputs, then round for display. A dollar-cent display may conceal small changes in the reference, especially where the model floors an outcome at zero. The cash translation describes the exchange exposure in dollars. An apparent relationship to a change in rate probabilities needs a dated futures quote as independent evidence.

Across these months the exchange quote rose 47 times, fell 48 times and was unchanged 1 times. The median absolute endpoint change was 1.38%. The 25th and 75th percentiles of signed endpoint returns, using the sorted observation at the floor of the fractional rank on a zero-based scale, were -1.14% and 1.91%. These are descriptive sample figures. A frequency of rising quotes is neither a rate of profitable trades nor the chance of a favorable outcome on a future payment.

The largest rise | 2022-04

Start with the largest signed monthly rise in this sample. At the last observation of 2022-03, the quote was 121.440. At 2022-04-29 it was 129.840, a signed change of 6.92%. Applying the exposure rule to the earlier price gives 20,471.01 US dollars. Applying it to the later price gives 19,146.64 US dollars. The resulting difference is -1,324.37 US dollars. The quote and the modeled amount need not move in the same direction. Read the numerator and denominator of the actual contract before interpreting a rising candle as a higher bill.

For a plausible contemporaneous alternative, use the first observation of the new month, 122.600 on 2022-04-01, as the budget anchor. The modeled change to the same ending date becomes -1,130.68 US dollars. You have altered only the starting timestamp. That small adjustment matters when the prior month ended before a weekend or holiday. A report that chooses the better anchor afterward mixes performance evaluation with hindsight. Use the timestamp of the actual invoice, forecast or mandate if one exists.

Separate the realized monthly rate from the priced scenario

The published effective federal funds rate started this month at 0.33%. Averaging all 30 calendar observations gives 0.3300%. A realized monthly arithmetic check on the 100-minus-rate scale therefore gives 99.6700. This is a number calculated after the month completed. It cannot stand in for a futures quote available before a meeting. The dollar observations in the table span the same month rather than the announcement minutes.

For a forward-looking exercise use the starting rate, assume 10 days unchanged and 20 days exposed to either no move or a 25-basis-point increase. Give the increase a hypothetical 15% probability. The expected subsequent rate is 0.3675% and the whole-month average is 0.3550%, giving a model price of 99.6450. Varying the assumed probability by ten percentage points changes that price by only 0.0167 points in magnitude. This last number measures date sensitivity, without asserting the Fed actually met on the invented date.

The largest decline | 2024-07

The steepest fall among the remaining months went from 160.880 to 150.380. The cross rate expressed in reverse would instead move from 0.00622 to 0.00665. Its signed percentage change is 6.98%, whereas the original quote changed by -6.53%. Reversing a percentage sign is only an approximation. Arithmetic returns in reciprocal currencies have different denominators. Use full-precision quotes when translating a dollar budget in either direction.

In the working example the unchanged exposure generated a modeled 16,531.45 US dollars at the end, against an original 15,452.51 US dollars. At the arithmetic midpoint of the two observed rates the modeled result would be 15,973.78 US dollars. By comparison the mean of the two modeled endpoint amounts is 15,991.98 US dollars. A linear conversion can make these coincide; a reciprocal or an option-like floor can separate them. This is a practical unit test for a budget spreadsheet built by averaging rates before conversion.

The quietest finish | 2020-06

A quiet monthly finish concealed a sequence of 22 observations. The first budget mark and last mark differed by only 0.00% in absolute quote terms. Between them, the lowest sampled exchange rate was 106.440 on 2020-06-23 and the highest was 109.680 on 2020-06-05. Their ordering is observable at the daily reference frequency. It says nothing about whether a stop or limit was touched first inside an individual trading day.

Including the original budget mark, the lowest and highest modeled amounts were 22,665.94 US dollars and 23,355.88 US dollars. A payment falling due inside this interval would use the terms available on its own date. Picking the cheapest date after seeing the month grants an option the original decision maker may never have had. Ask whether the underlying agreement allowed early settlement, whether the counterparty would accept it, and what financing or fees would accompany changing the date. The end-to-end change alone leaves out all three questions.

The widest daily range | 2020-03

For the widest remaining sample range, compare the recorded low of 102.520 with the high of 111.440. That spread is 8.25% of the previous month-end reference. If the exposure were valued separately at those two observations, the modeled amounts would be 24,248.93 US dollars and 22,307.97 US dollars. A full intraday high-low range could be larger than this sampled range. Treat these as independent reference valuations, not executable bid and offer quotes sitting on a dealer screen at the same instant.

Now place an administrative review on the middle observation, 2020-03-16. At 105.640 the modeled amount was 23,532.75 US dollars. The remaining change to the final observation was -413.62 US dollars. This separates currency exposure before and after the person responsible could act. It is especially useful when a headline about the full month sounds alarming but the invoice was approved or the policy decision released much later. Use an actual approval timestamp for a real case.

Separate the realized monthly rate from the priced scenario

The published effective federal funds rate started this month at 1.58%. Averaging all 31 calendar observations gives 0.6523%. A realized monthly arithmetic check on the 100-minus-rate scale therefore gives 99.3477. This is a number calculated after the month completed. It cannot stand in for a futures quote available before a meeting. The dollar observations in the table span the same month rather than the announcement minutes.

For a forward-looking exercise use the starting rate, assume 13 days unchanged and 18 days exposed to either no move or a 25-basis-point increase. Give the increase a hypothetical 57% probability. The expected subsequent rate is 1.7225% and the whole-month average is 1.6627%, giving a model price of 98.3373. Varying the assumed probability by ten percentage points changes that price by only 0.0145 points in magnitude. This last number measures date sensitivity, without asserting the Fed actually met on the invented date.

The busiest path | 2022-12

This month has the greatest remaining sum of absolute observation-to-observation log changes: 19.38 percentage points. Its net endpoint change in ordinary percentage terms was -5.38%. Offsetting moves can make the first number large while leaving the second small. Absolute log movement is a path statistic. It includes both directions and must never be booked as the return someone earned by holding the exposure. Collecting every move would require knowing each reversal and being able to execute it after costs.

The annualized sample standard deviation calculated from the 21 log changes was 22.23%, using 252 observations per trading year. The mean level across this month’s daily exchange marks was 134.915, whereas its median was 135.140. Valuing the exposure at those two central rates gives 18,426.45 US dollars and 18,395.74 US dollars. The mean answers a question about evenly weighted observations and the median is the middle observation or average middle pair. Neither is necessarily the benchmark named in a specific agreement.

A month near the middle | 2023-10

Extreme outcomes attract attention. This case was chosen for being close to the median absolute monthly move among the remaining candidates, with an absolute change of 1.36%. Its 21 daily marks give an average modeled value of 16,618.69 US dollars. Valuing the same exposure only at the last mark produces 16,413.57 US dollars. The final observation therefore differs from the typical daily valuation measured by that average by a signed -205.11 US dollars. The difference can go either way; the average has no privileged status for a one-date settlement.

Suppose a report allowed one person to choose a monthly average and another to use the last observation. They could disagree by that amount while applying identical formulas and the same published data. Settle the disagreement by identifying the decision the figure supports. A month of evenly spread expenses calls for transaction weights or a stated approximation. A single invoice calls for its conversion date. A policy announcement needs a timed quote. The right measurement rule follows from the economic event and should be fixed before examining the answer.

Separate the realized monthly rate from the priced scenario

The published effective federal funds rate started this month at 5.33%. Averaging all 31 calendar observations gives 5.3300%. A realized monthly arithmetic check on the 100-minus-rate scale therefore gives 94.6700. This is a number calculated after the month completed. It cannot stand in for a futures quote available before a meeting. The dollar observations in the table span the same month rather than the announcement minutes.

For a forward-looking exercise use the starting rate, assume 15 days unchanged and 16 days exposed to either no move or a 25-basis-point increase. Give the increase a hypothetical 79% probability. The expected subsequent rate is 5.5275% and the whole-month average is 5.4319%, giving a model price of 94.5681. Varying the assumed probability by ten percentage points changes that price by only 0.0129 points in magnitude. This last number measures date sensitivity, without asserting the Fed actually met on the invented date.

A sharp single step | 2022-11

The largest remaining single-step move was from 146.150 on 2022-11-09 to 141.780 on 2022-11-10. In ordinary percentage terms that is -2.99%. Against the exposure rule, this step changes the modeled amount by 524.29 US dollars. Because the observations can be separated by nonbusiness days, describe this as an observation-to-observation change. The file cannot reveal which hour accounted for it or whether liquidity was available at either published level.

To check a claim about that step, identify the calendar of releases and local holidays for both currencies, then match each event with its precise published time. Look for an independent price series that actually traded in the proposed interval. A gap between daily reference marks invites a hypothesis; following the sequence of executable quotes is how you could test it. Changing an amount solely because of the two marks is an accounting exercise. Attributing the difference to a particular trader, institution or economic release needs additional evidence.

A split-date budget | 2022-03

Take the average modeled valuation on the first five available dates, 21,573.01 US dollars, and on the last five available dates, 20,335.90 US dollars. Their difference is -1,237.11 US dollars. This case has the largest remaining absolute gap by that definition. A plan fixed in advance to value half the exposure against each group would give a weighted amount of 20,954.46 US dollars if the exposure and its charges can be divided proportionately. The result is a comparison of timing policies. It does not reveal an optimal execution date.

A fixed charge can break that proportional assumption if two actual transactions each incur the full charge. An indivisible futures contract or option can prevent splitting the quantity at all. An announcement time cannot be averaged across ten dates. Before applying the exercise, identify the specific constraint: multiple possible moves or a changed effective-rate spread. Then identify which of the two windows an actual mandate would allow. Where the timing choice is unavailable, read the two amounts as a sensitivity range instead of an executable plan.

When the decision falls late in the month

In a 30-day month with only three days affected, a 25-basis-point rate change moves the whole-month average by just 2.5 basis points if the outcome is certain. Moving its probability from zero to fifty percent moves the average by 1.25 basis points under the two-outcome model. A small difference in the assumed prevailing effective rate can therefore have an outsized effect on implied odds when the remaining weight is small.

To cross-check, examine the next full month under an explicit assumption about other meetings or intervening changes. A cleaner window can carry more information about the post-meeting level, although it introduces its own contract conventions and term assumptions. If the inferred probability falls below zero or above one, investigate the assumed rates, observation dates, quote freshness and allowed outcomes before treating the number as meaningful. Truncating it to zero or one hides why the simple model failed.

How to identify a usable USD/JPY setup on a chart

Open a five-minute USD/JPY replay and hide everything to the right of your intended decision. This is a hypothetical short case, constructed to show how multiple possible moves or a changed effective-rate spread fits into an execution record. Use New York local time for the chart, retaining the actual offset for the date. For a restricted or offshore currency, this drawing describes a price sequence, not the availability of a US retail contract. An economic reference period, a release time and a bar timestamp belong in separate fields.

In the first diagram the reference high is 151.264. The candle that trades above it reaches 151.332 before price returns into the range. To describe that move as a sweep in ICT terminology, mark the existing level first. If the level only becomes obvious after the reversal, save the observation as a retrospective pattern. An increase in volume or a financial headline cannot reveal whose orders traded there.

The displaced leg reaches beyond 151.093. Read bars five, six and seven as a sequence. A gap between the outer wicks brackets the interval from 151.105 to 151.147. It is a chart definition of an imbalance. Price could fill that interval, pass straight through it or never revisit it. Only the first return that satisfies a rule written in advance can provide a candidate entry for this particular exercise.

How to trade the idea on demo and define failure

For the rehearsal, a sell at 151.127 follows a return into the marked interval. If the order fails to fill, record an unfilled setup and retain the original timestamp. Moving the order toward the next favorable candle after that candle forms changes the test. Keep the macro or account question separate: The independent document check concerns multiple possible moves or a changed effective-rate spread. A convincing answer about that issue cannot make a missed entry executable.

The protective exit is 151.371, beyond the sweep, and the planned target is 150.688. For this short idea the favorable direction in the pair is lower. A live position can experience partial fills, a spread jump or a gap past the stop. For this drawing only we assume all levels execute exactly as stated. The second chart displays one favorable sequence so that the accounting can be checked. It supplies no evidence about how often such a sequence occurs.

Set an expiry for the entry and cancel the study if the invalidation trades before entry or if the spread makes the gross plan infeasible. If a coarse chart touches stop and target within one bar, lower-frequency OHLC cannot settle the order of events. Use properly timestamped executable quotes if available. Otherwise keep a separate ambiguous sample, and state that rule before counting wins. For this rehearsal the underlying document remains the source for the expected policy rate implied by a monthly average.

Worked example in a US dollar account

Calculate the distance before calculating the money. The entry-to-stop distance is |151.127 minus 151.371| = 0.244, or 24.4 pips. The target distance is |150.688 minus 151.127| = 0.439, or 43.9 pips. Keeping absolute distances here avoids giving a short setup a negative risk amount. The sign of the actual result belongs on the fill record after closing.

At 21,000 base units, the distance to the stop represents 5,124.00 JPY and the distance to the target represents 9,219.00 JPY. Convert to a USD result separately at each assumed exit by dividing by 151.371 or 150.688 JPY per US dollar. The conversion is slightly different on the two outcomes. Gross reward divided by gross risk is USD 61.18 / USD 33.85 = 1.81. Written as risk:reward this is 1:1.81.

Assume a round-trip cost of USD 2.70 on either completed outcome. We use executable entry and exit prices, so a spread already inside those prices must not be charged again. The simplified net reward is USD 61.18 minus USD 2.70 = USD 58.48. Net planned loss is USD 33.85 plus USD 2.70 = USD 36.55. Net R:R is 1:1.60 because USD 58.48 / USD 36.55 = 1.60. Financing, slippage and tax are excluded from this short rehearsal.

Check the losing branch with the same care as the winning one. If the exit slips by one additional pip against you, the quote-currency impact on this size is 210.00 JPY before any conversion. A plan denominated in dollars should reserve for an adverse fill or skip a setup that cannot fit the intended budget. Keep the original quote and the executed price alongside the size and currency of the exposure.

To annotate the rehearsal, mark the existing swing first, then identify displacement and the interval between the outer candle wicks. For definitions and session context, see the school’s lessons on fair value gaps, order blocks, the London session, market structure shifts, and the Judas swing.

Sources and calculation notes

CME FedWatch methodology. CME FedWatch user guide.

Historical series and original records. DEXJPUS observations and units · DFF observations and units. The calculations use observations available when checked on November 14, 2026. Subsequent revisions can change retrospective comparisons.

Frequently asked questions

To take the release from the data table to a dated trading record, use the news-release filter, bond-market fundamentals, liquidity sweeps, and hindsight-free replay.