Dynamic news effects in high frequency Euro exchange rates

This paper investigates the dynamic, short-run response of Euro exchange rate returns to the information surprise of global macroeconomic announcements. In addition, it advocates a new approach to modelling intraday exchange rate volatility to allow accurate characterisation of reactions. US macroeconomic news generates far more dramatic responses in EUR-USD returns and returns volatility than news on the macroeconomic performance of other countries. However, some Eurozone and German indicators are also important and UK announcements are important for the EUR-GBP rate. The reaction of exchange rate returns to news is very quick and occurs within the first 5 min of the release with very little reaction in the 15 min before and after. These findings show that exchange rates are strongly linked to fundamentals in the 5-min intervals immediately following the data release. Reactions to news are found to vary in magnitude over the sample, with the largest responses to news occurring in response to turning points in the cumulative flow of news. (C) 2010 Elsevier B.V. All rights reserved.