Offshore NDF trading transmits exchange rate pressure to emerging market spot rates, study finds

A $1 billion increase in offshore dollar demand moves the onshore exchange rate by about 10 basis points within minutes and the offshore forward rate by about 18 basis points. The study, using transaction-level data from LCH ForexClear for 10 emerging market currencies from 2014 to 2025, finds that offshore trading widens the gap between offshore and onshore prices. Regulatory changes affecting bank access to offshore markets, including episodes in China, Malaysia and India, determine how much of this pressure reaches the domestic market.