Foreign exchange markets, climate risks and contextual news: An intraday analysis

This paper examines the dynamics of the foreign exchange market, focusing on the impact of macroeconomic, climate risk, and COVID-19 pandemic-related news on currency returns and volatility. Our findings show that prior to the pandemic, currency returns were mainly driven by macroeconomic news, but the onset of COVID-19 shifted attention to pandemic-related news. Vaccine-related announcements consistently increased volatility across markets, reflecting heightened uncertainty. Additionally, climate risk was found to strengthen the four major currencies relative to the US dollar. Finally, the study highlights context-specific effects, with certain indicators losing relevance while others gained prominence during the pandemic. • Climate risks lead to higher exchange rate volatility. • Countries with high exposure to climate change risks experience currency depreciation. • Before the pandemic, currency returns are primarily influenced by macroeconomic news. • The pandemic crisis shifted focus towards pandemic-related news.