FX Cross-Currency Basis
The premium over interest-rate parity that one currency commands in cross-currency funding — a measure of USD funding scarcity.
Definition
Cross-currency basis is the additional spread (positive or negative) required to borrow one currency against another beyond what interest rates alone imply. A negative EUR-USD basis means EUR borrowers must pay extra to get USD.
Persistent negative basis in non-USD currencies reflects structural USD demand from non-US banks that can't access Fed funding directly.
Public research record
Research framework · page evidenceCompleted application: FX Cross-Currency Basis
FX basis spreads are the cleanest read on global USD funding stress. Wide negative basis precedes credit-spread widening and equity volatility.
| Type | Claim | Scope |
|---|---|---|
| Release fact | The premium over interest-rate parity that one currency commands in cross-currency funding — a measure of USD funding scarcity. | FX |
| Release fact | March 2020: EUR-USD 3M basis blew out to −150bp before Fed swap lines were expanded. After swap-line announcements, basis normalized within days. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
FX basis spreads are the cleanest read on global USD funding stress. Wide negative basis precedes credit-spread widening and equity volatility.
Worked example
March 2020: EUR-USD 3M basis blew out to −150bp before Fed swap lines were expanded. After swap-line announcements, basis normalized within days.