What explains global exchange rate movements during the financial crisis?

A striking and Unexpected feature of the financial crisis has been the sharp appreciation of the US dollar against virtually all currencies globally. The paper finds that negative US-specific macroeconomic shocks during the crisis have triggered a significant strengthening of the US dollar, rather than a weakening. Macroeconomic fundamentals and financial exposure of individual Countries are found to have played a key role in the transmission process of US shocks: in particular Countries with low FX reserves, weak current account positions and high direct financial exposure vis-a-vis the United States have experienced substantially larger Currency depreciations during the crisis overall, and to US shocks in particular. (C) 2009 Elsevier Ltd. All rights reserved.