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Foreign Exchange Fixings and Returns Around the Clock

Ingomar Krohn, Philippe Mueller and Paul Whelan

Staff Working Papers from Bank of Canada

Abstract: 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
Date: 2021-10
New Economics Papers: this item is included in nep-ifn, nep-mst and nep-ore
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Handle: RePEc:bca:bocawp:21-48