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

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  • Trancoso, Tiago
  • Gomes, Sofia

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.

Suggested Citation

  • Trancoso, Tiago & Gomes, Sofia, 2023. "Beyond the dollar: A global perspective on exchange rate dynamics via currency factors," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006335
    DOI: 10.1016/j.frl.2023.104261
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    References listed on IDEAS

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    7. Kenneth S. Rogoff & Vania Stavrakeva, 2008. "The Continuing Puzzle of Short Horizon Exchange Rate Forecasting," NBER Working Papers 14071, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Abakah, Emmanuel Joel Aikins & Brahim, Mariem & Carlotti, Jean-Etienne & Tiwari, Aviral Kumar & Mensi, Walid, 2024. "Extreme downside risk connectedness and portfolio hedging among the G10 currencies," International Economics, Elsevier, vol. 178(C).

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    More about this item

    Keywords

    Currency factors; Return spillovers; Currency baskets; Dollar factor; G10 currencies;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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