An Intelligent Event-Sentiment-Based Daily Foreign Exchange Rate Forecasting System

Abstract

Financial time series analysis is an important research area that can predict various economic indicators such as the foreign currency exchange rate. In this paper, a deep-learning-based model is proposed to forecast the foreign exchange rate. Since the currency market is volatile and susceptible to ongoing social and political events, the proposed model incorporates event sentiments to accurately predict the exchange rate. Moreover, as the currency market is heavily dependent upon highly volatile factors such as gold and crude oil prices, we considered these sensitive factors for exchange rate forecasting. The validity of the model is tested over three currency exchange rates, which are Pak Rupee to US dollar (PKR/USD), British pound sterling to US dollar (GBP/USD), and Hong Kong Dollar to US dollar (HKD/USD). The study also shows the importance of incorporating investor sentiment of local and foreign macro-level events for accurate forecasting of the exchange rate. We processed approximately 5.9 million tweets to extract major events’ sentiment. The results show that this deep-learning-based model is a better predictor of foreign currency exchange rate in comparison with statistical techniques normally employed for prediction. The results present evidence that the exchange rate of all the three countries is more exposed to events happening in the US.

Keywords

• foreign exchange rate
• forecasting
• event sentiment
• deep learning
• regression
• SVM