Do U.S. Leading Economic Indicators Drive Global Exchange Rates? Evidence from Major Currency Pairs

This study examines whether U.S. Leading Economic Indicators (LEIs) systematically influence major global exchange rates and, consequently, the extent to which U.S. economic conditions shape currency movements in an increasingly interconnected global financial system. Using 112 monthly observations from January 2015 to April 2024, the study analyzes the relationship between ten components of the U.S. Leading Economic Indicators and the U.S. Dollar Index (DXY) and six major currency pairs: GBP/USD, EUR/USD, USD/AUD, USD/JPY, USD/CAD, and USD/CNY. Descriptive statistics, correlation analysis, and multivariate regression models are employed to identify the U.S. indicators associated with movements in each exchange rate. The results reveal substantial heterogeneity across currencies. Equity-market performance, consumer expectations, manufacturing activity, housing permits, and selected other indicators demonstrate significant relationships with particular currency pairs, while many U.S. indicators do not consistently influence exchange rates across the full set of currencies. The explanatory power of the models also varies considerably across currency pairs. Overall, the findings suggest that U.S. economic conditions remain relevant to global foreign-exchange markets but do not uniformly determine movements in major currencies. The study highlights the increasingly interconnected and multidimensional nature of exchange-rate determination and suggests that global and country-specific factors should be considered alongside U.S. macroeconomic indicators when analyzing international currency movements.