Abstract
Using transaction level data from the inter-dealer market, we find that the price impact of one standard deviation change in FX swap order flow has increased from less than one basis point prior to 2008 to about five basis points after 2008. However, the increase in price impact is confined to periods of elevated dispersion in funding costs and over quarterends. Central bank swap lines reduce the order flow into USD, subsequently affecting the FX forward rate. In contrast, over quarter-ends and after monetary policy announcements we observe that dealers immediately adjust prices to curb order flow.
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