This paper examines the effect of European Central Bank (ECB) communication on the price discovery process in the Euribor futures market using a new tick-by-tick data set. First, we show that two pieces of news systematically hit financial markets on Governing Council meeting days: the ECB policy rate decision and the explanation of its monetary policy stance. Second, we find that the unexpected component of ECB explanations has a significant and sizable impact on futures prices. Third, we investigate how communication interacts with learning by the public about the credibility of the central bank: financial market participants needed around three years, from 1999 through 2001, to learn how to interpret and believe ECB announcements. Finally, our results suggest that the Euribor futures market is efficient.
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