Nordstrom: A Market in Motion: Looking Back on Three Decades in Foreign Exchange

Good morning. I'm so pleased to be with you today at the annual Markets Conference here at the Norges Bank. Being in Oslo and engaging with this group of thought leaders and practitioners from across the Norwegian financial industry brings to mind so many wonderful memories of my time working at the Riksbank and the European Central Bank. I look back on these years very fondly.

In this light, today, I want to talk about my experience in the foreign exchange (FX) market-a market that holds a special meaning for me as it's where I began my career three decades ago at the Riksbank in Stockholm.

As was the case then, the FX market remains unique in its size and significance. It serves as a critical conduit facilitating the flow of capital in support of international trade and investment. This role has only grown in importance as the global economy has continued to expand and become further interconnected. The exchange rate also represents an important channel of monetary policy transmission, making it a focus in policymaking.

While the fundamental drivers and structural flow dynamics behind moves in currencies like the U.S. dollar and Norwegian krone, for example, may differ, we as central bankers are united in our common interest in understanding shifts in FX market structure, promoting resilience, and encouraging good market practices.

In my remarks, I'll begin by offering some reflections on the evolution of the FX market through the lens of my career. Then, I'll explain the role of the New York Fed in the FX market and explore how understanding market structure and trading dynamics helps us interpret developments. And finally, I'll conclude with a few thoughts about how technological innovation is expected to come into play as the landscape continues to evolve.

Before I go any further, I want to note that the views I express today are my own and do not reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.

From Stockholm to New York: Riding FX's Wave of Change

Over my career in central banking and in the FX market in particular, I've witnessed firsthand a dramatic transformation in how we trade, yet I've also been struck by what has remained constant.

When I began my career at the Riksbank, voice trading was the primary execution method. FX traders in the market shouted orders across trading floors, price discovery happened through networks of dealers and brokers, and execution required multiple phone calls. Fast forward to today, and the shift toward electronification has been nothing short of remarkable. Some trades that once took minutes, and in other cases hours, can now be done in milliseconds and at reduced costs with the advent of electronic trading platforms and sophisticated execution algorithms.

Electronification has also led to the emergence of new market participants. For example, electronification has enabled new FX trading strategies, such as high-frequency trading, employed by participants that primarily seek to transact on liquidity rather than provide it. These new "market-takers" or liquidity consumers are the "aggressors" of FX trades, executing on the bids and offers made available by liquidity providers. It has also facilitated the rise of non-bank "market-makers" seeking to capitalize on the electronic trading infrastructure.

The proliferation of alternative ways to conduct trades has created an increasingly decentralized ecosystem, offering customizable liquidity for the diverse set of liquidity consumers that transact in the market.

Yet, through all this change, the FX market has maintained its hallmark characteristic: deep, resilient liquidity that persists whether provided by a network of dealer banks or a more varied group of market participants spread across multiple liquidity pools. And, just as it was in the Swedish krona market in the 1990s, this resilience continues to be tested by periods of heightened volatility. Turbulence in financial markets remains a feature, not a bug. In an environment of ongoing innovation, this requires us to continually ask new questions about what market resilience looks like, how we assess liquidity during periods of stress, and what is most effective in promoting good market practices.

The New York Fed's Role in the Foreign Exchange Market

The New York Fed plays an important role in supporting the functioning of the economy and financial markets. The FX market, the most active financial market in the world, is pivotal in facilitating the flow of capital in support of international commerce and investments.

The New York Fed's Markets Group is responsible for FX interventions at the direction of the U.S. Treasury Department and the Federal Open Market Committee (FOMC).¹ So it's important that we continuously study market dynamics and structure. Understanding FX market dynamics also fits into the Markets Group's broader mandate to monitor global financial market developments.²

In addition, the New York Fed helps to support the smooth functioning of U.S. dollar markets globally and, with that, the flow of credit to U.S. households and businesses. Understanding the underpinnings of the FX swap market is critical to ensuring that the Fed's international dollar liquidity facilities are effective backstops. Such facilities include the central bank swap lines and the Foreign International Monetary Authorities repo facility.³

The New York Fed also sponsors the Foreign Exchange Committee (FXC).⁴ This Committee brings together FX market participants from across the ecosystem, from banks, asset managers, and hedge funds to corporates, financial market utilities, and non-bank liquidity providers. The FXC meets regularly to discuss market developments, emerging trends, and issues affecting market functioning, providing an important real-time gauge of FX market conditions. The New York Fed also regularly engages with the Global Foreign Exchange Committee (GFXC) about market structure evolution.⁵

This Committee work, in tandem with research on new financial technologies through the New York Innovation Center and convening forums like the annual FX Market Structure Conference, ensures that the New York Fed remains at the forefront of market structure evolution.⁶

Finally, the New York Fed also engages in promoting best practices in the FX market. Nearly a decade ago in 2017, working through the FXC and similar committees across the globe, we achieved a significant milestone: the launch of the FX Global Code.⁷ The Code lays out 55 principles of good practice to promote a robust, fair, liquid, open, and appropriately transparent FX market. It represents an unprecedented collaboration between central banks and market participants globally to articulate clear principles for responsible participation in FX markets. Without a doubt, being involved in the publication of the Code was one of the proudest accomplishments of my professional career.

The Ebb and Flow of Recent Dollar Moves

I'll now turn to some recent market developments, which illustrate why understanding FX market structure and trading dynamics is so essential to our work. How trades are executed, who is executing them, and the mechanisms behind these flows can influence price action in ways that may initially seem puzzling. As such, it is essential to look beyond surface-level price movements to ensure we accurately assess market conditions and distinguish between fundamental shifts in sentiment and technical trading flows.

Consider, for example, the dollar's notable depreciation in 2025. Amid elevated uncertainty in U.S. trade policy last April, we observed unusual price action: the dollar depreciated while Treasury yields rose and equities declined. This garnered attention from market participants as it diverged from the typical "flight to quality" flows observed during risk-off episodes, in which the dollar tends to appreciate and Treasury yields tend to fall.

This constellation of price action raised questions about the possibility of a shift away from U.S. dollar-denominated assets.

A year later, the narrative has shifted to a more nuanced story. The price action discussed by market participants in 2025 reflected in part an increase in FX hedging activity from some global fund managers. Anecdotal reports, supported by jurisdiction-specific measures, indicate that some foreign investors raised the hedge ratios on their U.S. asset holdings from historically low levels-a factor that contributed to the dollar's depreciation, even as available data showed limited evidence of foreign investors actively selling U.S. assets.

Understanding this distinction is critical because it suggests that the dollar's weakness stemmed largely from the mechanics of how hedging flows transmit through the FX market, rather than from a sudden shift in asset allocation. In other words, the price action appears to reflect changes in the hedging behavior of global investors more so than a sudden, fundamental reassessment of U.S. asset holdings-though we continue to monitor whether more gradual portfolio adjustments may be occurring alongside these hedging flows.

Mechanically, when investors hedge their U.S. holdings by selling dollars forward or buying dollar put options, intermediaries of those flows, such as banks, are left with dollar positions that must be offset by selling dollars in the spot market. This creates depreciation pressure on the dollar that can be misconstrued as portfolio reallocation or U.S. asset sales when, in fact, something very different is happening-the underlying U.S. assets remain held, they're just being hedged.

As I mentioned earlier, this episode underscores the importance of understanding the types of flows driving changes in the value of a currency. The mechanism behind the price action matters as much as the direction. Recent evidence suggests this hedging activity may have plateaued, but it reinforces the need for consistent engagement with market participants to better understand shifts in trading activity that can have broader implications for the value of a currency and the FX market in general.

The Future of FX: Continuity amid Change

As FX market structure continues to evolve, it is important to organize events like this to remain attuned to the themes that shape markets.

The electronification journey in the FX market that began many years ago continues. New technologies like artificial intelligence and innovations in payments infrastructure are expected to shape aspects of how the market functions going forward. Of course, investor behavior also evolves in response to changing economic and policy conditions.

Yet through all this evolution, the market's fundamental importance to the global economy persists. As I reflect on my journey participating in the FX market from my perch in central banking, I'm reminded that while the tools and technology have transformed dramatically, our work remains the same: to understand the nuances of the FX market-not only to foster a robust, fair, and transparent market, but also to accurately interpret market developments by putting price action in its proper context.

Of course, we don't do this work in isolation. Our collaboration with central banks around the world like the Norges Bank enriches our perspective and strengthens our ability to navigate market evolution. I look forward to continuing this dialogue and to working together to deepen our collective understanding of this market that connects us all.

¹ The New York Fed also provides FX transaction services to its official sector account holders, U.S. government agencies, and the Federal Reserve System.

² Roberto Perli, Market Intelligence and the Monetary Policy Process, Remarks at the Deutsche Bundesbank - Representative Office New York, September 24, 2024.

³ Central Bank Liquidity Swap Operations and Foreign and International Monetary Authorities Repo Facility

⁴ Foreign Exchange Committee

⁵ Global Foreign Exchange Committee

⁶ Dan Reichgott, Fabiola Ravazzolo, and Lisa Chung, The FX Market's Evolution in Focus at the 2025 FX Market Structure Conference, Federal Reserve Bank of New York The Teller Window, February 5, 2026.

⁷ FX Global Code