Synthetic dollar funding costs vary by 7bp across dealer books
A Bank of England study shows synthetic dollar funding lacks a single price, with rates varying across dealer books. Intermediaries charge 2.5 basis points more when buying dollars forward, widening to 11.8 basis points under one month.
Seven basis points of dealer dispersion
Using confidential UK EMIR transaction records from January 2021 through October 2025, the authors analyze 27,291,457 outright deliverable FX forwards across 14 G15 dealer parents in six core dollar pairs.
Comparing contracts executed within the same 30-minute window, currency pair, and ten-day maturity bucket reveals a 10th-to-90th percentile price dispersion of 7 basis points per year across dealer-months.
Dealers consistently price the sell-foreign-currency side—where they purchase dollars forward—2.52 basis points above the buy-foreign-currency side.
This directional asymmetry remains stable between 2.2 and 2.7 basis points after controlling for client-dealer fixed effects and trade characteristics.
Cashflow positions alter policy pass-through
Matching forward records with UK SFTR repo data shows that dealer balance sheets shape execution prices.
A one-percentage-point increase in a dealer's repo lending rate raises its residual forward price by 1.12 basis points.
Across 39 FOMC announcements, predetermined balance-sheet positions alter monetary transmission: an extra $1 billion in scheduled seven-day dollar inflows dampens pass-through of a policy tightening surprise by 0.08 to 0.10 basis points, while dollar outflows show no symmetric effect.
Market power trumps funding costs
These findings dismantle the myth of a uniform synthetic dollar price across global currency markets.
Proving that dispersion stems from dealer market power rather than funding costs exposes substantial rents in OTC trading.
Central bank liquidity facilities cannot easily eliminate distortions rooted in dealer intermediation structures.