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


  • We thank Refet Gurkaynak for kindly providing some data used in this study. The earlier versions of the paper were presented at 2006 Eastern Finance Association, 2006 Western Economics Association, and 2006 Financial Management Association annual meetings. We thank session participants, the editor (Cynthia Campbell), and particularly the anonymous referee for very extensive comments. Wang and Yang acknowledge financial support from the PSC-CUNY research grant and the UC Denver Faculty Research & Scholarship Completion Fund, respectively.

* Corresponding author: The Business School, PO Box 173364, University of Colorado Denver, Denver, CO 80217-3364; Phone: (303) 556-5852; Fax: (303) 556-5899; E-mail:


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.