How do macroeconomic announcements and FX market transactions affect exchange rates?

In this paper we analyse the relation between the EUR/HUF exchange rate, economic fundamentals and FX market transactions. Our results are in line with international experiences: the effect of macroeconomic announcements is transmitted to the exchange rate partly directly, with an immediate change in the exchange rate, and partly indirectly, via the information revealed through the FX market transactions, triggered by the news. We found that macroeconomic news, as well as the buying/selling pressure originating from one-way transactions both affect the level of the exchange rate and volatility. Our results also show that around pre-scheduled data releases the one-way transactions move the exchange rate more than under normal circumstances. Furthermore we broadened the commonly used set of macroeconomic news, such as data on GDP, inflation etc., to include the communications of central bankers. The model including central bank communication can explain a considerable part of exchange rate changes.