Daylight-Saving Time weakens the pound and other currencies

When a country begins its Daylight-Saving Time, the value of their currency depreciates reducing its strength in international markets – yet when the country exits Daylight Saving Time (DST) this depreciation is reversed, according to new research by Durham University Business School.

This is likely to be caused by a combination of the psychological impacts linked to DST, such as sleep disruption and heightened stress, which disrupts markets, and the change in market position caused by shifting time zones. When countries enter into DST, their time difference with the United States – the world’s most prominent stock market – becomes larger, negatively affecting trading.

The study, undertaken/conducted by Dr Michael Nower, Assistant Professor in Economics at Durham University Business School, examined the impact of DST on bilateral exchange rates.

To do so, Dr Nower used Federal Reserve daily data on exchange rates from the period of 1971 to 2020, aggregated to weekly averages.

This data amounted to over 300,000 observations, focused on a range of countries that that observe DST; Australia, Canada, Denmark, the Eurozone, New Zealand, Norway, Sweden, Switzerland, the United Kingdom and the United States, as well as two countries that do not observe DST: Japan and South Africa.

The research found that DST had a significant impact on countries that observe it – with their currency depreciating from the week that this begins, until the week that DST ends.

Interestingly, the US dollar was the only currency which saw minimal negative impact on its value when it entered DST. This, Dr Nower says, is likely due to the US market and the dollar being predominant across the globe, and many countries having to adjust their markets to correlate with the US market time zones.

Then, Dr Nower used data on the equity markets of each country and on time zone differences to examine the drivers of the DST effect, showing evidence of the normal psychological and physiological effects of DST transition, as well as an impact of shifting time zones, relative to the USA.

When DST ends, time zones revert back to normality in relation to the US market, whilst there are positive psychological effects due to the changes in time. These are the likely reasons as to why the end of DST leads to an improved value of the currencies.

“Over 1.2 billion people live in the more than 60 countries where daylight saving time is currently fully or partially observed at different times of the year,” says Dr Nower. “Our research shows that, though it is argued that it has certain societal benefits, daylight savings time has a negative impact economically for the countries that observe it – weakening their currency over the period”.

With over 70 countries which previously used to observe DST now no longer doing so, and discussions, including a vote in European Parliament to end DST across the EU, it is likely we may see less and less countries observing this in the near future.

If you would like to receive the full research paper, or speak with the researchers, please contact Peter Remon at BlueSky Education – peter@blusky-pr.com +44 (0) 77 235 228 30.