The 30 largest banks active in the UK foreign exchange market participated in the survey, which showed that while FX swap transactions had increased by 8% since the last report, the drop in overall volume was largely driven by a 12% fall in FX spot activity. The drop in FX spot activity – it fell from $804 billion a day in October 2011 to $711 billion a day in April 2012 – is unsurprising given that it came at a time of subdued volatility in the FX market as EURUSD, the most widely traded currency pair, held in a tight trading range for the first few months of 2012.
Indeed, the drop in activity was reflected elsewhere, with the FX market’s large multi-dealer platforms also reporting subdued activity during that period.
Subsequently, activity picked up after a resurgence of concern over eurozone sovereign debt following the result of the Greek general election in May. That knocked EURUSD out of its tight trading range as investors began to seriously question the potential of a Greek exit from the single-currency bloc.
The rise in FX swap turnover – up from $882 billion in October 2011 to $957 billion in 2012 – is also understandable given that it occurred after the European Central Bank eased concerns over interbank counterparty risk.
Worries over counterparty risk had led FX swap volumes to fall off considerably in the previous survey. The ECB’s two long-term refinancing operations appear to have boosted activity in that market, however.
The survey also breaks down volume by currency pair and showed that EURUSD accounted for 32.8% of trading volumes, down from 35% in October. That was followed by GBPUSD at 12.3% of total turnover and USDJPY at 10.9%. AUDUSD, the fourth most-traded currency pair in London, accounted for 7.2% of turnover, up from 5.7% recorded a year earlier.
Volumes suffer more in New York
There was a more striking fall in volume in New York, the world’s second-largest FX centre.
Figures from the equivalent survey from the Federal Reserve Bank of New York showed that average daily FX turnover in April was $859.8 billion, a sharp drop from the $977 billion estimated in October.
As in London, the driving force in New York was a drop in average daily spot FX volumes, which plunged 24% from October to $429 billion, although that was down just 2.4% on a year earlier.
In New York, EURUSD remains the most traded currency pair, with a 34.3% share of volumes. USDJPY ranked second with a 12.1% share, followed by AUDUSD with 11% and GBPUSD with 9%.
Similar semi-annual surveys were also conducted by central banks for Singapore, Australia and Canada.
The Singapore Foreign Exchange Market Committee reported average daily reported volume in FX spot, outright forwards and FX swaps in Singapore was $300 billion in April, 6.7% less than in October.
Australia and Canada, both of which recorded sharp falls in the previous survey, bucked the trend, however.
The Reserve Bank of Australia showed average daily local foreign exchange activity rose 5% from October to $175.7 billion in April. That was a 20% fall on a year earlier, however.
In Canada, average daily turnover was recorded at $59.6 billion in April, 13.7% higher than in October.