Dealer Risk Premiums in FX Forecasts

In this paper, we re-assess the role of risk premiums in FX survey forecasts. Given that market makers in foreign exchange are both price setters and contributors to surveys such as Consensus Forecasts or FX4Casts we may expect risk premiums of FX liquidity provision to emerge in forecast data as well. Consistently, the empirical analysis shows that FX forecasts are strongly correlated with risk premiums calculated from FX derivatives as well as dealer balance sheet factors