Global FX Turnover Falls in April, But Outliers Exist

Unsurprisingly, given the sharp slowdown seen after the March mayhem in FX markets, the latest FX committee turnover data indicates that April 2020 was a quieter month that April 2019, although the regional data is anything but consistent with that trend. Compared to the October 2019 survey, turnover was down across the board in all products and in all regions.

In the UK, turnover was $2.412 trillion, down 15.6% from the previous April with declines everywhere but NDFs and currency swaps. Spot activity was $677 billion per day, down 14.2% on April 2019’s revised data, while FX swaps turnover declined by 16.9% to $1.2 trillion. With the April 2019 heavily revised in the October report, outright forward activity fell 7.6% to $110 billion, and that in NDFs by 3.5% to $272 billion per day. FX options turnover fell by 21.5% to $124 billion, however currency swaps turnover actually rose fractionally to $27 billion per day from $26 billion.

Perhaps reflecting the lower volatility of April’s markets, turnover in the UK jumped strongly in yen and Swiss franc and fell in sterling, Australian dollar and, to a less degree, in the euro. The UK data also indicate that internalisation programmes were down on their normally efficiency, perhaps due to overhanging nervousness following March. The percentage of turnover between reporting dealers was 55.2%, from 50.8% the previous April, while with other banks it was 20.5% (from 21%), and financial institutions represented 20.55% of activity (24.7%). Again supporting the perception that markets were still nervous and hedging programmes remained active, turnover with non-financial institutions actually rose as a share of the overall, to 3.7% from 3.5%.

The picture was slightly different in the US, however, perhaps due to that country not enforcing a nationwide lockdown as the UK did. While overall turnover fell, by 5.7% to $764.6 billion per day, spot activity actually rose slightly, by 1.8% to $325 billion. FX swap turnover also declined by less than the UK, dropping just 2.9% to $251.8 billion, while outright forwards fell 15.3% to $115 billion and NDF activity fell 11.5% to $38.6 billion. FX options turnover declined 35.3% to $34.2 billion.

In the US the share of turnover between reporting dealers actually fell slightly to 36.3% from 37%, while that with other banks rose to 24.1% from 21.6%. On the customer front, other financial institutions’ turnover was 33.3% of the total, from 34.2% the previous April, while non-financials’ share also fell, from 7.1% to 6.2%.

Both the UK and US reports back up anecdotal evidence that volume gravitated towards the larger dealers who maintained a service during the March volatility, in the UK, the top six dealers had a 79% share of spot market activity, up from 74.1% the previous April, while the share of dealer 7-12 declined to 14.9% from 17.8% and those of 13-18 from 6.2% to 4.7%. In the US the changes were less stark, the top group of four increasing its share to 74.4% from 73.3%, while 5-8 declined from 16.2% to 15.2% (9-12 was up 0.5%, while 13-16 was down the same amount).

Away from those two centres, the Singapore Foreign Exchange Committee reports average daily turnover of $549.5 in April, a 6.2 % decline from the previous year. Spot activity in the city state actually rose 11.8% to $124.3 billion in April, but this was more than compensated for in other products. Outright forwards activity fell 9.6% to $71 billion, while in FX swaps it fell by 5% to $275.7 billion. Derivatives activity in Singapore fell by 23%, with FX options turnover declining by 19.3% to $24.2 billion, while the much larger currency swaps market saw activity decline by 24.3% to $68.2 billion.

Japan and Australia provide the outliers in the latest reports, both reporting an increase in activity on a year-on-year basis. In Japan, the Tokyo Foreign Exchange Committee reports turnover was $424.3 billion, a 6.5% increase. Spot activity was up 11.7% to $135.3 billion, while FX swaps turnover also increased, by 11.5% to $225.3 billion. Outright forwards activity in Japan declined by 10.9% to $54.7 billion, while currency swaps (-26.7% to $3.3 billion) and FX options activity (-40.2% to $5.8 billion) both fell sharply.

In Australia, meanwhile, FX turnover was $129.4 billion, up 8.6%, with spot (up 12.3% to $37.3 billion) and FX swaps (up 13.1% to $73.6 billion) providing impetus for the gains. Outright forwards activity was broadly unchanged at just under $15 billion per day, while currency swaps (-50% to $2.1 billion) and FX options (-12.8% to $1.4 billion) both declined.

It is difficult to discern much of a trend in the data and expectations are that those committees who revise data may be called upon to do so given the working environment in most major financial centres in April with workforces heavily dispersed (indeed the reports themselves have been released three or four weeks after the usual date and the Canadian committee has still to report for April). Notwithstanding that, market sources tell Profit & Loss that April was generally one of, if not the, quietest month of the year to date, therefore activity may return to trend in the October data.

Colin Lambert

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