The Dollar Ahead of FOMC Target Rate Changes

Nina Karnaukh
Additional contact information
Nina Karnaukh: OH State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: I find that the U.S. dollar appreciates over the two-day period before contractionary monetary policy decisions at scheduled Federal Open Market Committee (FOMC) meetings and depreciates over the two-day period before expansionary monetary policy decisions. The federal funds futures rate forecasts these dollar movements with a 22% R^{2}. A high federal funds futures spread three days in advance of an FOMC meeting not only predicts the target rate rise, but also predicts a rise in the dollar over the subsequent two-day period. A simple trading strategy, which exploits this predictability, exhibits a 0.93 Sharpe ratio. My findings imply that information about monetary policy changes is reflected first in the fixed income markets, and only later becomes reflected in currency markets.

JEL-codes: E52 F31 G12 G17 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.ssrn.com/abstract=3221318

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2018-14

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().