News or Noise?

I always find it amusing to read headlines from the business press (and their web sites) regarding macroeconomic news. In particular, headlines about exchange rates many times refer to dramatic movements in currency prices. No doubt that some currencies are very volatile and there is room to talk about interesting changes affecting exchange rates, but it also seems the case that most of these headlines do not correspond to what one sees in the data. Days were there is very little movements in exchange rates produce headlines such as “Dollar tumbles” or “Euro falls sharply”.

As an illustration, I have collected headlines regarding the US dollar / Euro exchange rate for the last thirteen days (source CNBC.com). What we see is a succession of headlines (and stories) that talk about dramatic upward and downward movements of this exchange rate. There are days where one can even get three headlines on this subject, each of them pointing in a different direction. The list of headlines is below, together with a plot of what the Euro/Dollar exchange rate did during those days. Interestingly, despite the dramatic tone of the headlines the exchange rate was very stable moving in a range 1.4350 to 1.4500 (which is a fairly narrow range for this exchange rate).

List of headlines (CNBC.com)

Fears of weak global economy helps support dollar
Thursday, 18 August 2011 10:51 PM ET
FOREX OUTLOOK-Dollar drops but respite in sight if economy dims
Friday, 19 August 2011 11:25 PM ET
FOREX-Fed speculation hurts dollar vs high-yielders, euro
Monday, 22 August 2011 3:32 PM ET
Dollar wavers as stocks jump on lack of bad news
Monday, 22 August 2011 5:32 PM ET
FOREX-Euro edges up on German data, hopes for Fed easing
Tuesday, 23 August 2011 5:57 PM ET
Dollar Slides as Investors Look to Fed Move
Tuesday, 23 August 2011 10:26 PM ET
Dollar Gains on Stock Selloff, Bets on Bernanke Speech
Thursday, 25 August 2011 10:31 PM ET
FOREX-Dollar slips vs euro, yen ahead of Bernanke speech
Friday, 26 August 2011 3:30 PM ET
Dollar gains strength after Bernanke speech
Friday, 26 August 2011 4:50 PM ET
FX OUTLOOK-Dollar tumbles after Bernanke; U.S. jobs data ahead
Friday, 26 August 2011 11:30 PM ET
Euro Held Up by Asian Banks
Monday, 29 August 2011 1:30 AM ET
Dollar Slips, Poland Talks Tough
Monday, 29 August 2011 3:21 PM ET
FOREX-Dollar rises vs franc, yen as US recession fears fall
Monday, 29 August 2011 6:56 PM ET
Bernanke speech weighs on dollar in thin trading
Monday, 29 August 2011 7:41 PM ET
Dollar Rises vs Franc, Yen and Franc Fall on US Data
Monday, 29 August 2011 8:37 PM ET
Dollar to Hit $1.50 to Euro?
Monday, 29 August 2011 10:17 PM ET
Euro Falls Sharply on Euro Zone Debt Worries
Tuesday, 30 August 2011 2:47 PM ET

Source: Oanda.com

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