Traders may be accustomed to hearing ambiguous answers or refutations to commonly held beliefs. And commentators enjoy producing them: After all, who wants to engage in a discourse proving the sky is blue on a sunny day?
That is why it is surprising, at least to this writer, that the results of these tests prove currencies move in the direction dictated by short-term interest rate shocks on the same day, the next day, and the one-week time frame for upward short-term rate shocks. Downward moves in yield produce tradable results a week later, but the effect is not as strong.
The next time you see a strong move in short-term interest rates and an expected reaction in the currencies, go with it. It’s real — and isn’t that a surprise?
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