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α: calibrated so average coauthorship-adjusted count equals average raw count
We study the joint evolution of foreign exchange (FX) spot and swap market liquidity. We find strong co-movement in spot and swap market liquidity conditions and a robust link between FX funding and market liquidity, as gleaned from the pricing of both instruments. This link has strengthened over time. Dealing desks of globally systemically important banks periodically pull back from pricing FX swaps, particularly those that operate closer to regulatory capital or liquidity minimums. While wider spreads attract smaller dealers, liquidity in FX swaps remains impaired, which leads to illiquidity spillovers to the spot market. Our findings suggest that funding liquidity has become a more important driver of spot market liquidity than it used to be.