FX Turnover Slows Further in October

Data from the world’s FX committees reinforces the sense
that April was a minor outlier in FX turnover, with all but one centre
reporting a slowdown in activity from April 2016 to October 2016.

In April 2016 – coincidentally the month of the Bank for
International Settlements’ (BIS) Triennial Survey of FX Turnover – there was a
late spike in activity as the Bank of Japan surprised markets through its
inactivity on monetary policy, leading to yen volumes soaring. This spike has
largely been reversed in the latest surveys.

The better news from the surveys was that generally speaking
turnover was higher year-on-year.

In the UK average daily volume (ADV) in October 2016 was
$2.18 trillion per day, 2% down on April but 3% up year-on-year. As
characterised in the BIS survey released last year, spot volumes continued to
decline, dropping 8% in the UK to $692 billion per day. FX swaps volumes,
probably affected by the April spike in yen activity, also dropped, by 2% from
April.

The Bank of England’s FX Joint Standing Committee (JSC),
which is responsible for the survey, says that USD/JPY volumes dropped by 16%
from April, however this decline was partly made up for by an increase in Cable
activity, which rose 8%.

In the US, the New York Foreign Exchange Committee (FXC)
reports ADV of $881.25 billion, a 1.3% decline from April, but an 8.9% increase
year-on-year.

Spot activity declined 6% in the US across the six months,
however FX swap volume was up 4.4%. Again there was a significant shift in yen
volumes in the US, FXC data shows they dropped by almost 15% from April 2016.

Turnover in Singapore also declined, by 4.9% to $481.5
billion, however spot activity was actually slightly higher, rising by 4.1%.
Confirming analysis
at the time
that April’s data in Singapore had been impacted by a surge in
yen swap activity, turnover in swaps declined by 19.8% in the six months to
October with USD/JPY swaps turnover declining by 41% alone.

In Japan, the Tokyo Foreign Exchange Committee says that ADV
was $386.3 billion, down 5.1% from April. Again spot activity was lower, by
12.8% and FX swaps also declined, by 2.9%. Activity in FX forwards was up 5.3%,
while FX options activity declined 5.8%. Total yen volume in Japan fell by 9.4%
across the survey period.

Elsewhere, Canada’s survey was highlighted by a decline in
activity in every FX product, leading to a 6.5% drop in overall activity to
$79.2 billion.

Australia was the only centre to report an increase in FX
turnover between April and October 2016, although this is largely due to a
large downward adjustment of $13.5 billion in April’s data. The AFXC reporting
ADV of $126.6 billion, up 4.4% on the revised April number. The growth was
exclusively driven by FX swaps, which rose by 11.8% to $90.5 billion per day.
Spot activity dropped by 11.6% to $23.66 billion.

Although the data is no directly comparable due to nuances
in reporting methods, the latest FX committee data indicates that if the BIS
were to produce a survey based on October 2016, overall FX turnover would have
fallen below $5 trillion, albeit slightly.

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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