Impact on the U.S. dollar

Posted by Scriptaty | 1:10 AM

To determine how currency markets have behaved surrounding annual meetings of the G7/G8 countries, we analyzed the Federal Reserve’s nominal U.S. dollar major currencies index around each of these 30 events since the group’s formation in 1975.

It shows the average daily gains or losses on the 10 days before the summit, each of the meeting’s three days (MDs 1 to 3), and the 10 subsequent days.

Overall, the U.S. dollar tended to slide in anticipation of meetings. The dollar sold off in the second week prior to these events and then traded sideways on the five days leading up to them. The index fell an average 0.36 percent from the 10th to the seventh day, but moved less than 0.05 percent (up or down) from the sixth day to the day before meetings.

The dollar’s most intriguing pattern appeared after the summit: It climbed an average 0.12 percent on day 1 before dropping off a cliff the next day (-0.20 percent) — the study’s largest daily move in either direction. Although the index headed higher in the remaining eight days, it posted gains on just five of those days and no distinct pattern emerged.

It divides the analysis period into three sections: The 10 days prior to the summit, its three-day duration, and the following 10 days. It compares each day’s average performance to its median and shows its benchmark (a loss of less than 0.01 percent) as well as maximum and minimum moves. Standard deviations and percentage of gains are also shown.

The U.S. dollar’s average values match their medians, which implies gains and losses are fairly accurate. However, there are two exceptions to this rule. For instance, day -4’s median is more bullish than its average (0.12 vs. -0.02 percent, respectively), and the opposite scenario occurred on day 3 (-0.09 vs. 0.08 percent).

Each day’s percentage of gains also reinforces the U.S. dollar’s pattern of slumping prior to G7 meetings and rebounding, somewhat, after them. For example, eight of the 10 days before these events have a win percentage of less than 50 percent, which means the index is likely to lose ground during this period. Similarly, five of the subsequent 10 days have win percentages greater than 50, and day 2’s biggest loss (0.20 percent) also has just a 33.33-percent change of losing ground.

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