Norges Bank

Working Paper

Price-setting in the foreign exchange swap market: Evidence from order flow

Olav Syrstad and Ganesh Viswanath-Natraj
Working Paper


This paper investigates price discovery in foreign exchange (FX) swaps. Using data on inter-dealer transactions, we find that a 1 standard deviation increase in order flow (i.e. net pressure to obtain USD through FX swaps) increases the cost of dollar funding by up to 4 basis points after the 2008 crisis. This is explained by increased dispersion in dollar funding costs and quarter-end periods. We find central bank swap lines reduced the order flow to obtain USD through FX swaps, subsequently affecting the forward rate. In contrast, during quarter-ends and monetary announcements we observe high frequency adjustment of the forward rate.

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ISSN 1502-8190 (online)

Published 28 October 2020 17:10
Published 28 October 2020 17:10