Inflation announcements and asymmetric exchange rate responses

•Exchange rates respond asymmetrically to positive/negative inflation surprises.•We explain this stylised fact based on asymmetries in monetary policy preferences.•We assume larger aversion to negative rather than positive output gap values.•We obtain the same result for inflation below rather than above a credible target level. Previous literature has documented but not yet explained asymmetric exchange rate responses to unanticipated inflation announcements under a credible inflation-targeting regime. We present a theoretical model explaining the reported asymmetries in exchange-rate responses based on asymmetries in monetary policy preferences.