Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337468 
Year of Publication: 
2026
Series/Report no.: 
CFR Working Paper No. 26-04
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
We study the determinants of US dollar demand across market participants and traded instruments using survey-based exchange rate and macroeconomic expectations. Leveraging granular FX trading data and forward looking expectations, we present three results. First, currency investors increase their dollar holdings when expecting US dollar appreciation or improved US macroeconomic fundamentals, whereas synthetic dollar funding is driven by forecasted CIP deviations. Second, cross-sectionally, investors rebalance along the factor structure of currency risk into dollars following an expected dollar appreciation. Third, responses to professional forecasts weaken when uncertainty or forecaster disagreement rises, and are lower for forecasters with poorer past accuracy. Our findings demonstrate that long-horizon expectations accurately predict dollar demand across spot, swap, and forward currency markets. We rationalize those finding in a theoretical model of currency demand.
Subjects: 
Exchange rate expectations
dollar demand
currency flows
FX swaps
survey forecasts
JEL: 
F31
G15
F37
Document Type: 
Working Paper

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