Forex

Record $7.5 trillion in FX trading per day


© Stocksak. FILE PHOTO – An arrangement of various world currencies, including the Chinese Yuan, Japanese Yuen, US Dollars, Euro, British Pounds, Swiss Franc, and Russian Rouble, pictured in Warsaw on January 26, 2011. REUTERS/Kacper Pempel

Marc Jones and AlunJohn

LONDON (Stocksak), – Currency trading reached a record $7.5 trillion per day, a new study has revealed. While the dollar continues to be the global leader, there are signs that London’s position is being threatened by Brexit.

The Bank for International Settlements, a central bank umbrella group, conducted a triennial survey. It collected data starting in April when markets were dealing with the Ukraine war and the early stages of the aggressive U.S. rate hike cycle.

The headline $7.5 trillion daily turnover was a historic 14% increase over the $6.6 trillion recorded in 2019. It was driven by a combination of higher foreign exchange spot, swaps, and forwards market volumes.

Global turnover accounted for 51% in FX swaps, an increase of 49% from 2019 and spot trades fell from 30% to 28%. Outright forwards continued at 15%.

The BIS stated that this was the lowest triennial rate of growth in all but two Surveys, since 2004, “despite data collection coincident with increased FX volatility due changing expectations about the future path of interest rates in major advanced economies and rising commodity prices, and geopolitical tensions after the Russian invasion.

This survey is considered the most complete overview of global currency markets trading and includes data from more than 1200 banks and dealers in 52 countries.

The U.S. dollar’s dominance was unwavering. It was involved in 88%, which has been maintained for the past ten years. The euro was second in most actively traded currencies, despite a small decrease to 31%.

Other top currencies, such as the Japanese Yuan and the British Pound, maintained their respective 17% and 13% shares. However, the largest increase to 7% from the 4% mark pushed it to fifth place in the overall rankings, up from eighth.

Volumes were not included this time due to Russia’s withdrawal as a member of the BIS following the invasion of Ukraine. However, it was less than 1 percent in 2019.

LONDON FALLS

Brexit and Libor have been averted, transforming the global OTC interest rate derivatives market. In April 2019, daily turnover dropped to $5.2 Trillion from $6.4 Trillion.

    Banks and companies use interest rate swaps to insure themselves against unexpected moves in borrowing costs.

    But after banks were fined for trying to rig the London Interbank Offered Rate or Libor, most of the rate’s permutations across five currencies were scrapped at the end of 2021 and replaced with rates compiled by central banks.

    “The most significant factor contributing to the decline in turnover is the continuing shift away from Libor for major currencies,” the BIS said.

    There were also shifts in activity after Britain completed its departure from the European Union at the end of 2020.

It was the largest currency trading location worldwide, accounting for 38% of global turnover. This was down from 43% by 2019.

London foreign exchange desks still have the highest turnover of interest-rate derivatives at $2.6 billion, which is 46% global ‘net-gross. But this was also down from 51%.

    “Turnover in U.S. dollar swaps has partially shifted from sales desks in the United Kingdom to the United States and Asian financial centres,” the BIS said, although it is uncertain whether it is a fundamental long term shift.

    “Similarly, turnover in euro swaps has shifted from the United Kingdom to the euro area.”

    Brexit meant that EU banks could no longer trade OTC derivatives in London.

    Turnover in euro interest swaps grew the most over the three years surveyed by BIS, reaching $1.3 trillion per day in 2022, up 38% from April 2019.

    Turnover of euro rate swaps in Britain fell 18% to $1 trillion over the three years, while turnover by dealers, particularly in Germany and France more than tripled, from $124 billion in 2019 to $385 billion in 2022.

Asia’s financial hub Hong Kong saw FX trading drop to 7%, from 8%. This was due to COVID-19 restrictions.

Only September saw the city remove mandatory quarantine for all incoming travelers. There are still restrictions on the size and number of group gatherings. These rules have led to an exodus from international bankers.

Hong Kong’s rival in the region, Singapore, has increased its share of global revenue to 9% from 8.8%. Both hubs, however, remain among the top five global venues.

News Source and Credit

Stocksak Editorial

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