Macroeconomic News and the Euro/Dollar Exchange Rate

28 Pages Posted: 26 Nov 2003

See all articles by Gabriele Galati

Gabriele Galati

De Nederlandsche Bank

Corrinne Ho

Bank for International Settlements

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This paper investigates to what extent daily movements in the euro/dollar rate were driven by news about the macroeconomic situation in the USA and the euro area during the first two years of EMU. We examine whether market participants reacted to news in different ways depending on whether the news came from the USA 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. Finally, we find evidence that the impact of macroeconomic news on the euro/dollar rate was stronger when news switches from good to bad or vice versa.

JEL Classification: F31

Suggested Citation

Galati, Gabriele and Ho, Corrinne, Macroeconomic News and the Euro/Dollar Exchange Rate. Available at SSRN:

Gabriele Galati (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

Corrinne Ho

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel, Basel-Stadt
00 41 61 280 9100 (Fax)

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