Macroeconomic news and the euro/dollar exchange rate
BIS Working Papers No 105
We examine whether market participants reacted to news in different ways depending on whether the news came from the United States or from the euro area, and whether the news was good or bad. Furthermore, we investigate whether traders' reaction to news has changed over time.
We find that macroeconomic news has a statistically significant correlation with daily movements of the euro against the dollar. However, this relationship exhibits considerable time variation. There are indications of asymmetric response, but to different extents at different times. Our results also provide evidence that the market seemed to ignore good news and remain fixated on bad news from the euro area, as often claimed in market commentaries, but only for some time.