This paper examines the responses of foreign exchange rates to the Federal Reserve's
large-scale asset purchases (LSAPs) and forward guidance (FWG) from 2009 to
2022 using local projections. The findings confirm heterogeneous responses of examined
foreign exchange rates to unconventional shocks, varying by magnitude, direction, and
duration depending on monetary conditions and shock type. Both shocks caused the
appreciation of foreign exchange rates against the US dollar in all monetary conditions,
except for the forward guidance shock during the normalization. The forward guidance
shock had a greater impact magnitude on the examined foreign exchange rates than
the LSAPs shocks. The effects of both unconventional shocks were more persistent
during ZLB periods than during normalization. However, the impact of such shocks
on foreign exchange rates diminishes within a couple of months, contrasting with some
literature that finds more persistent effects. Lastly, variance decomposition shows that
forward guidance shocks significantly influenced foreign exchange rate variation more
than LSAPs shocks, emphasizing the importance of effective guidance communication
to the markets.