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Using Central Bank Fixings as Daily Spot Forex Data

Article Quant Q&A · Author: Homunculus Reticulli
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Summary

The document considers whether official central bank exchange rate fixings can stand in for end-of-day spot forex data in lower-frequency analysis. The response points to the European Central Bank’s daily exchange rate series, noting that its rates are fixed at a consistent time using a stated daily procedure. A consistent fixing can support analyses such as daily volatility and correlations when exact intraday market data are not needed.

The response treats consistency of timing and methodology as the main practical advantage, while acknowledging that details of the fixing procedure, including its inputs and sampling window, are not established in the excerpt. It does not provide a comparison against closing market quotes or evidence of cointegration. The proxy is presented for daily statistical work, not as a substitute for intraday prices or a guarantee that every official rate matches a chosen market close.

Key ideas

  • A central bank fixing can provide a consistent daily exchange rate time series.
  • The cited ECB procedure fixes rates at a consistent time each day.
  • Daily volatility and correlation analysis may not require precise intraday quote details.
  • The excerpt does not validate the series against market closes or establish cointegration.
  • Official fixings are presented as unsuitable proxies for intraday trading prices.

Tags

ForexStatisticsBacktesting
Full text
# Relationshiop between central bank official currency rates and spot forex


# Relationshiop between central bank official currency rates and spot forex












Central banks publish official figures for domestic interest rates, as well as spot currency rates for a few select countries (largest trading partners).

To prevent arbitrage, I "expect" that in the absence of any intraday shocks to the system, the central banks figures will (and the possibility of arbitrage), should keep intraday prices "in check" - that is within reason.

I do not trade forex actively myself, so I do not know if this inference from the fundamentals (pun unintended), is borne out in practise.

My question therefore is this:

In lieu of actual EOD data for forex market data, is it practical (i.e. sensible), to use bank official rates as a proxy for actual EOD spot currency rates?

This would obviously be flawed for intraday trading, but for lower frequency trading, I imagine that the series (official rates and market spot values), will be highly cointegrated - and therefore, the former can act as a proxy for the latter - am I correct?

## Answer by q.t.f. (score 3, accepted)

https://quant.stackexchange.com/a/17688

Yes, you can use e.g. the ECB daily official foreign exchange rate data as a reliable and consistent daily timeseries. ECB does a fixing at 14:15 CET, by some methodology they call a "daily concertation procedure". I don't easily find a description of the details (are they considering only traded prices, or bids and offers? How long of a time window around 14:15 may used? etc.) But for purposes of daily vol, correlation, etc. such details won't matter. It is a consistent dataset with a consistent methodology giving daily market exchange rates.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.