Beyond the dollar: A global perspective on exchange rate dynamics via currency factors

Tiago Trancoso and Sofia Gomes

Finance Research Letters, 2023, vol. 58, issue PA

Abstract: This paper investigates the dynamics of currency exchange rates from a global perspective, by expanding on the concept of currency factors. Through the analysis of G10 currencies, we disclose the interconnections and patterns driving exchange rates, shedding light on the central role of the euro and Swiss franc in shock propagation. Furthermore, we observe that pound and yen factors have acted as net absorbers of spillovers from other currencies. Our findings suggest that currency factors provide valuable insights for international diversification, risk sharing strategies, and real-time indicators of foreign exchange market uncertainty.

Keywords: Currency factors; Return spillovers; Currency baskets; Dollar factor; G10 currencies (search for similar items in EconPapers)
JEL-codes: F31 F41 G15 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006335

DOI: 10.1016/j.frl.2023.104261

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