The US dollar is the natural hub for FX forward curves
Table of Contents
1. Summary
The US dollar is on one side of about 89% of FX trades, so most liquid forward points are quoted against it. A system that builds its forwards from USD pairs follows the market's own structure.
2. Detail
A cross such as EUR/GBP then follows from its two USD legs. A second hub would give two routes to the same cross, and the routes need not agree. That last step is our reasoning and not a sourced claim.
The dollar's position also shapes the basis. The BIS reports a persistent cross-currency basis for lending dollars against most currencies since 2007.
3. See also
- FX forwards — the structure note.
- An FX-implied curve is backed out from a discount curve and forward points — completes: how another curve follows from the hub.
- ORE Studio publishes FX forwards derived from published curves — exemplifies: ORE Studio starts with USD pairs.
- Cross-rates matrix (CRM) — completes: the same hub in spot derivation.