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U.S. Monetary Policy Surprises and Currency Futures Markets: A New Look

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  • Tao Wang
  • Jian Yang
  • Marc W. Simpson

Abstract

Intraday currency futures prices react to both surprises in the federal funds target rate (the target factor) and surprises in the anticipated future direction of Federal Reserve monetary policy (the path factor) in similar magnitude, and the reaction is short‐lived. Dollar‐denominated currency futures prices drop significantly in response to positive surprises (i.e., unexpected increases) in the target and path factors, but have generally little response to negative surprises. A monetary policy tightening during expansionary periods leads to an appreciation of the domestic currency, while a monetary policy loosening during recessionary periods tends to have no significant impact.

Suggested Citation

  • Tao Wang & Jian Yang & Marc W. Simpson, 2008. "U.S. Monetary Policy Surprises and Currency Futures Markets: A New Look," The Financial Review, Eastern Finance Association, vol. 43(4), pages 509-541, November.
    • Handle: RePEc:bla:finrev:v:43:y:2008:i:4:p:509-541
    DOI: 10.1111/j.1540-6288.2008.00206.x
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    Cited by:

    1. Chin Man Chui & Jian Yang, 2012. "Extreme Correlation of Stock and Bond Futures Markets: International Evidence," The Financial Review, Eastern Finance Association, vol. 47(3), pages 565-587, August.
    2. Syarifuddin, Ferry, 2020. "Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies," MPRA Paper 104810, University Library of Munich, Germany.
    3. Rosa, Carlo, 2014. "The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence," Energy Economics, Elsevier, vol. 45(C), pages 295-303.
    4. Pisun Xu & Jian Yang, 2011. "U.S. Monetary Policy Surprises and International Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 43(4), pages 459-490, November.
    5. Ferry Syarifuddin, 2020. "Macroeconomic Consequences Of Foreign Exchange Futures," Working Papers WP/14/2020, Bank Indonesia.
    6. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2021. "The FOMC announcement returns on long-term US and German bond futures," Journal of Banking & Finance, Elsevier, vol. 123(C).

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