Essay on The Impact Of Macroeconomic Releases On Exchange Rates
Economic releases have an important role in the foreign exchange markets. Indeed, macro announcements produce effects on both returns and volatility. Neely and Dey (2010) show that researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements and by doing so, they are now able to infer how markets react to news and how order flow helps impound public and private information into prices.
Also, markets tend to have a higher reaction to announcements when the surprise is higher. The surprise also has a key role on traders. Indeed, Evans (2008) argue that dealers may revise their quotes in response to new public information that arrives via macroeconomic announcements, and may also revise their quotes based on orders they receive from customers and other dealers. News, therefore, impact dealers directly and indirectly.
Another important point to take into account is that different macroeconomic announcements can have an impact on foreign exchange markets. Lahaye, Laurent and Neely (2009) found that nonfarm payroll and federal funds target announcements are the most important news across asset classes that have an impact on exchange rates.
The nonfarm payroll is a data concerning the employment in the United States. The interest rates are decided by the Federal Reserve (Fed). The Federal Open Market Committee (FOMC), a committee within the Fed, is in charge of fixing the…