Abstract:
Among the currencies traded in the foreign exchange (Forex) market, Euro against the US Dollar
(EUR/USD) remains as one of the dominant currency pairs. This study examines the disparities in the
behavior of EUR/USD return volatility during 2011with the simultaneous release of two economic
indicators of the US namely, unemployment rate (UR) and non-farm payroll (NFP) and the
applicability of GARCH family models in modeling the return volatility. Literature on this kind of
studies reveals that UR and NFP are highly influential on exchange rate movements. AR(2) and
GARCH(1,2) models can be used to forecast the conditional mean and conditional variance of returns
respectively. Conditional variance model can further be improved by including time around the
release of indicators as a variance regressor.
