Foreign Exchange Fixings and Returns Around the Clock

Abstract: The U.S. dollar appreciates in the run up to foreign exchange fixes and depreciates thereafter, tracing a W -shaped return pattern around the clock. For the G9 pairs in a 21-year sample, return reversals are pervasive, highly statistically significant, and based on spot volumes imply swings exceeding one billion U.S. dollars per day. Using natural experiments, we show the existence of a published reference rate determines the timing of intraday return reversals. Studying potential explanations, we conclude this effect is due to the hedging activities of foreign exchange dealers who intermediate an unconditional demand for U.S. dollars at the fixes.