Abstract
This study presents market-based evidence that threats to central bank independence increase exchange rate volatility. We use Trump’s tweets that criticize the Fed’s monetary policies and advocate lower interest rates as a proxy for threats to central bank independence. We find that intraday exchange rate volatility rises following Trump’s Fed tweets. Moreover, this relation is more pronounced for the tweets with greater market attention and more negative sentiment. Our findings suggest that market participants do not perceive the Federal Reserve as independent from political pressure.
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