Macroeconomic surprises, market environment and safe-haven currencies

In this paper, we study the reaction of the CHF and JPY to macroeconomic surprises and changes in the broader market environment before and during the crisis using high-frequency data. We show that both currencies are traditionally highly sensitive to macroeconomic surprises. This link, however, was significantly magnified during the crisis and effects persisted during times when monetary authorities implemented specific measures to limit the appreciation trend. We also find some evidence that, during the crisis, the CHF and JPY tended to respond more strongly to surprises generating an appreciation than to surprises leading to a depreciation. Both currencies also systematically respond to changes in the general market environment. This result is robust to the use of two measures of the market environment: VIX and on a novel index based on Bloomberg wires. Finally, our results suggest that negative macroeconomic surprises and deteriorations in the market environment are two distinct channels generating appreciation pressure on these two safe-haven currencies.