Editors’ note: This column is based on CEPR Discussion Paper 21606 “ECB exchange rate communication”.

Exchange rates remain one of the most closely watched prices in the global economy. Policymakers monitor them because they affect inflation, competitiveness, trade balances, and financial conditions. Markets scrutinise every remark by central bankers that might hint at their views on currency developments. Yet an old question remains unresolved: can central banks actually influence exchange rates simply by talking about them?

A substantial literature has suggested that they can. Studies of so-called ‘oral interventions’ have found that central bank statements often move currencies in the desired direction and may even reduce exchange rate volatility (Jansen and De Haan 2005, Fratzscher 2006, Fratzscher 2008, Beine et al. 2009).

Others remain sceptical. Foreign-exchange markets process trillions of dollars of transactions every day. Against this backdrop, a few carefully worded remarks may have little lasting effect. Moreover, modern central banks usually insist that they do not target exchange rates directly, potentially intentionally limiting the effects of any signal sent.

In new research (Comazzi et al. 2026), we revisit this debate using more than two decades of ECB communication, including a markedly different environment compared to earlier studies, which typically analysed data only up to the early 2000s. We employ state-of-the-art empirical methods, including the identification of economic shocks using high-frequency data and natural language processing techniques, to address earlier challenges related to endogeneity and potential biases from the human coding of exchange rate mentions.

Our findings largely support the sceptical view: exchange rate communication has only limited effects on the euro exchange rate, and any effects that do emerge tend to disappear quickly. This stands in contrast with monetary policy communication, which is a major driver of exchange rate movements.

Exchange rates and central bank communication

Communication has become one of the most important instruments in modern central banking. Exchange rates occasionally enter these communications. ECB presidents have often discussed how movements in the euro affect inflation and economic activity. Sometimes the statements have been relatively neutral. At other times they have signalled discomfort with exchange rate developments. For example, in January 2005, ECB President Jean-Claude Trichet stated: “As regards exchange rates, we confirm our position, expressed when the euro rose sharply, that such moves are unwelcome and undesirable for economic growth.”

Statements such as these raise a natural question. If markets hear that policymakers are concerned about an appreciation of the euro, does the exchange rate subsequently weaken? Or are such statements largely ignored?

A new dataset of ECB exchange rate communication

To answer this question, we collected data from the ECB’s monetary policy press conferences between 2002 and mid-2023. We identified nearly 100 exchange rate statements in the opening monetary policy statements and several hundred additional references during the subsequent Q&A sessions with journalists. Figure 1 shows the timing of exchange rate mentions alongside the EUR/USD exchange rate.

Figure 1 ECB exchange rate communication and the EUR/USD exchange rate

Notes: The figure shows the different exchange rate mentions in the ECB’s monetary policy statements over time, alongside the EUR/USD exchange. ‘Technical assumptions’: Exchange rate is mentioned as a technical assumption in the staff projections. ‘Monitoring’: Statements regarding the need to monitor the exchange rate due to its impact on the economy and inflation. ‘Economic effect of the exchange rate’: Statements regarding the exchange rate’s impact on the economy and inflation. ‘ECB concerned about volatility’ and ‘Unwelcomed move of the exchange rate’: statements expressing the ECB’s concerns about exchange rate volatility or direction/level of the exchange rate. 
Source: Comazzi et al. (2026).

The pattern is revealing. Exchange rate communication clusters during periods of substantial euro appreciation or depreciation. It was particularly prominent in the early 2000s when the euro appreciated sharply, or around 2014–15 when the euro weakened substantially.

To analyse the content of these statements, we use modern natural language processing techniques. Rather than manually coding whether statements favoured appreciation or depreciation, we construct sentiment-based measures that identify the direction implied by the ECB’s communication. We then examine how exchange rates moved after these communications, while controlling for monetary policy surprises and macroeconomic news releases.

Why does the ECB talk about exchange rates?

Before studying effectiveness, it is useful to understand what triggers exchange rate communication in the first place. The ECB mentions exchange rates when the real effective exchange rate deviates substantially from its estimated equilibrium value. Journalists behave differently: questions about exchange rates are much more likely when the nominal euro exchange rate has recently moved sharply, particularly when the euro appreciates. Questions are also more frequent when exchange rates have been discussed in speeches between policy meetings.

This suggests a clear division. Policymakers focus on exchange rate misalignments relative to fundamentals, whereas journalists respond primarily to visible market developments.

What really moves exchange rates?

The central result of the paper concerns what happens once exchange rates are actually mentioned.

A first observation is that monetary policy surprises remain by far the dominant driver of exchange rate movements during ECB press conferences, in line with Ilzetzki et al. (2023). Using high-frequency data, we find that monetary policy and central bank information shocks explain roughly 16% of the variation in exchange rate changes during press conferences. Exchange rate mentions themselves add little explanatory power. Figure 2 illustrates the close relationship between monetary policy surprises and exchange rate movements.

Figure 2 Monetary policy surprises and EUR/USD movements during ECB press conferences

Notes: The figure shows monetary policy surprises (using the reaction of the 2-year OIS rate over the entire press conference window, as provided by the ECB monetary policy event-study database of Altavilla et al. 2019) plotted against changes in the EUR/USD exchange rate. 
Source: Comazzi et al. (2026).

Do exchange rate statements move currencies in the desired direction?

The next question is whether exchange rate communication affects not just volatility but also the direction of exchange rate movements. The answer is largely no. Overall, we find little evidence that statements expressing a preference for appreciation or depreciation systematically move the euro in the desired direction.

There is one partial exception. Communication that implies a preference for euro appreciation appears somewhat more effective than communication suggesting depreciation. However, even these effects are economically modest and statistically fragile.

More importantly, any initial effects disappear quickly. When exchange rate communication does move the exchange rate on impact, the effect typically fades within days and is no longer statistically significant after roughly one week. This finding contrasts with parts of the earlier literature that reported more persistent effects.

Exchange rate communication has become less effective at the effective lower bound

One of the most interesting findings emerges when we compare different periods. During the ECB’s early years, exchange rate communication appears considerably more effective. Statements were more often associated with exchange rate movements in the intended direction.

But this effectiveness largely disappears once interest rates reached their effective lower bound after the global financial crisis. During this later period, exchange rate communication no longer displays a systematic relationship with subsequent exchange rate movements.

Implications

The results offer a somewhat sobering perspective on the power of exchange rate communication. Central banks continue to discuss exchange rates because they matter for inflation and economic activity. Such communication plays an important role in explaining policymakers’ assessments of economic conditions and in enhancing transparency. 

But communication alone appears to be a weak tool for influencing exchange rates directly. Financial markets seem to pay much more attention to what central banks do or say about monetary policy than to what they say about exchange rates.

For researchers, the findings also underscore the importance of distinguishing exchange rate communication from monetary policy shocks. Once modern high-frequency identification techniques are used, much of the apparent effectiveness of exchange rate communication disappears.

Authors’ note: The views expressed in this column are those of the authors and do not necessarily reflect those of the European Stability Mechanism, the European Central Bank or the euro system.

References

Altavilla, C, L Brugnolini, R Gürkaynak, R Motto, R, and G Ragusa (2019), “Measuring euro area monetary policy”, Journal of Monetary Economics 108: 162–79.

Beine, M, G Janssen, and C Lecourt (2009), “Should central bankers talk to the foreign exchange markets?”, Journal of International Money and Finance 28(5): 776–803.

Comazzi, F, M Domenech Palacios, M Ehrmann, M Ferrari Minesso, and A Mehl (2026), “ECB exchange rate communication”, CEPR Discussion Paper 21606.

Fratzscher, M (2006), “On the long-term effectiveness of exchange rate communication and interventions”, Journal of International Money and Finance 25(1): 146–67.

Fratzscher, M (2008), “Oral interventions versus actual interventions in foreign exchange markets – an event-study approach”, Economic Journal 118(530): 1079–106.

Ilzetzki, E, C Reinhart, and K Rogoff (2023), “Exchange rate volatility and monetary policy”, VoxEU.org, 4 April.

Jansen, D-J, and J De Haan (2005), “Talking heads: The effects of ECB statements on the euro–dollar exchange rate”, Journal of International Money and Finance 24(2): 343–61.