Buy the Rumour, Sell the Fact
Why the 'obvious' trade often loses
- Explain why already-priced expectations dominate FX reactions
- Spot when consensus is fully priced and the trade is exhausted
- Read 'in-line' data with the right lens
The Fed cuts 25bp exactly as expected. USD rallies. That makes no sense — until you understand that markets had priced a 50bp cut, and 25 was hawkish *relative to expectation*. This is the most counter-intuitive law in macro: prices reflect surprise, not data.
Markets price the path, not the event
Every economic event has an expected outcome baked into prices. The CB cuts 25bp; if 25bp was already 100% priced, nothing moves. If 50bp was priced, 25bp is a hawkish surprise — currency rallies. The *gap* between expectation and reality is the trade.
'Buying the rumour' = positioning early
Months before a Fed cut, traders position long bonds and short USD on the *expectation*. By the time the cut happens, the position is full. Insiders take profits ('sell the fact'). The currency rallies because shorts cover. This isn't conspiracy — it's just positioning math.
Fed cuts 50bp when market priced 25bp. USD plunges because the cut is more dovish than expectations. New positioning required.
Fed cuts 25bp as expected. USD often *rallies* because the rumour is done; longs take profit. Mean-reversion.
NFP +250k vs +250k expected (in-line). USD likely reaction?
- Markets price expected outcomes BEFORE the event
- Only the SURPRISE moves prices, not the data itself
- 'Buy the rumour, sell the fact' = positioning unwinds at the event
- In-line prints often trigger mean-reversion
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