Foreign Exchange Fixings and Returns Around the Clock
Philippe Mueller and
Staff Working Papers from Bank of Canada
We document that intraday currency returns display systematic reversals around the major benchmark fixings, characterized by an appreciation of the U.S. dollar pre-fix and a depreciation post-fix. We propose an explanation based on constrained intermediation by foreign exchange dealers. Exploiting data from a major inter-dealer platform, we present evidence of an unconditional demand for U.S. dollars at currency fixings. Dealers hedge this demand pre-fix, driving intraday reversals in both over-the-counter and exchange-traded markets. Furthermore, order imbalances in futures markets are not related to intraday reversal patterns, suggesting that the marginal investors in foreign exchange markets are intermediaries.
Keywords: Financial markets; Exchange Rates; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 59 pages
New Economics Papers: this item is included in nep-ifn, nep-mst and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:21-48
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