US market volatility struck Friday impacting FX Forwards pricing

Friday, August 1st, saw significant intraday volatility driven by news coming out of the US.

A disappointing US non-farm payrolls report, the high-profile dismissal of a U.S. statistics official and resignation of a Federal Reserve governor triggered significant market reactions. Within minutes, ripple effects were felt across asset classes – from equities, Treasuries and rates to FX.

“For FX market participants, Friday’s events underscored the complexity of price discovery during volatile periods. FX forward pricing, which reflects the cost of hedging forwards, is shaped by the FX spot rate, interest rate differentials, and cross-currency basis – all of which shifted sharply in a matter of minutes.”John Crisp, Head of FX Data Product & Strategy

What happened between 8am and 9am EST (Eastern Standard Time):

EUR/USD spot jumped 142 points (a 1.25% move)
The 1 Year SOFR rate reduced by 16 basis points
1 Year ESTR reduced by 3 basis points
The SOFR/ESTR 1Year cross-currency basis tightened from -4.3 to -4.0
Resulting in a net drop of 12.4 points on the EUR/USD 1Year FX forward points (a 5% shift)

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