The reaction of exchange rates and interest rates to news releases
AbstractThis paper examines the response of exchange rates and interest rates--U.S. and foreign--to economic news. The news is associated with the surprise component of the monthly release of six U.S. macroeconomic variables. The results suggest that dollar exchange rates systematically react to news about real economic activity--a surprise of 100,000 on nonfarm payroll employment leads to a 0.2 percent appreciation of the exchange rate. In general, exchange rates do not react systematically to news on inflation. By contrast, U.S. interest rates respond to both types of news, although the response continues to be extremely small, on the order of 1 to 2 basis points. Finally, Japanese interest rates systematically react, but to a very minor extent, to news about U.S. real economic activity, while German rates in general do not.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 570.
Date of creation: 1996
Date of revision:
Other versions of this item:
- Edison, Hali J, 1997. "The Reaction of Exchange Rates and Interest Rates to News Releases," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 87-100, April.
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- Pearce, Douglas K & Roley, V Vance, 1985.
"Stock Prices and Economic News,"
The Journal of Business,
University of Chicago Press, vol. 58(1), pages 49-67, January.
- Becker, Kent G & Finnerty, Joseph E & Kopecky, Kenneth J, 1995. "Domestic macroeconomic news and foreign interest rates," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 763-783, December.
- Ghosh, Sucharita & Lien, Donald, 1995. "Data Revision and Market Response: The Case of United States Trade Balance Announcements," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(2), pages 265-75, May.
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