Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248309 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-48
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We document that intraday currency returns display systematic reversals around the major benchmark fixings, characterized by an appreciation of the U.S. dollar pre-fix and a depreciation post-fix. We propose an explanation based on constrained intermediation by foreign exchange dealers. Exploiting data from a major inter-dealer platform, we present evidence of an unconditional demand for U.S. dollars at currency fixings. Dealers hedge this demand pre-fix, driving intraday reversals in both over-the-counter and exchange-traded markets. Furthermore, order imbalances in futures markets are not related to intraday reversal patterns, suggesting that the marginal investors in foreign exchange markets are intermediaries.
Subjects: 
Financial markets
Exchange Rates
Market structure and pricing
JEL: 
F3
F31
G15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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