The number used globally to measure the size of the FX market will be set at $6.6 trillion per day after the Bank for International Settlements (BIS) released the results of its Triennial Survey for Foreign Exchange Turnover.

The BIS says that globally $6.59 trillion was executed daily across FX products in April 2019, a 30% increase from the last survey in April 2016. The growth was spread across all products but was most pronounced in outright forwards and FX swaps which grew by 42.7% and 34.6% to $999 billion and $3.2 trillion per day respectively. The bulk of turnover in FX swaps was in short-maturity instruments (overnight up to seven days) in April 2019, although trading in longer tenors expanded over the past three years. Trading in medium-term tenors for outright forwards is more common than for FX swaps, and 61% of the turnover in outright forwards was in maturities of over seven days and up to three months.

In spite of generally downbeat sentiment around volatility levels in spot markets, activity in the product rose 20.3% to $1.99 trillion per day, while FX options turnover also rose by 15.7% to $294 billion per day. Volume in currency swaps was $109 billion per day, up from $82 billion in 2013. Activity in all product sets was a new high for the BIS survey except for FX options, which remains under its April 2013 peak of $337 billion.

At 30.2% of all activity, spot’s share of FX turnover has matched its lowest on record set in April 2007 just before the GFC, something that may be a concern to businesses focused on that market, elsewhere the only outlier on terms of product share was outright forwards hitting a new high-water mark at 15.2%.

The US dollar retained its dominant currency status, being on one side of 88.3% of all trades (87.6% in 2016). The share of trades with the euro on one side expanded somewhat, to 32.3% (31.4%, while the share of trades involving the Japanese yen fell almost 5% to 16.8% from 21.6%. The yen remained the third most actively traded currency, however, and the share of sterling was unchanged at 12.8% and that of the Australian and Canadian dollars fell by 0.1% at 6.8% and 5.0% respectively.

As in previous surveys, currencies of emerging market economies again gained market share, reaching 25% of overall global turnover, however in something of a surprise this was not largely driven by renminbi, which grew only slightly faster than the aggregate market, and did not climb further in the global rankings, remaining the eighth most traded currency, with a share of 4.3%, ranking after the Swiss franc at 5%.

Somewhat surprisingly given the very low volatility in the pair, the share of turnover in EUR/USD actually rose to 24% from 23.1% in 2016; while that in USD/JPY fell to 13.2% from 17.8%. Reflecting the uncertainty around Brexit, Cable activity rose to 9.6% of activity from 9.3%, while there were also increases for AUD/USD (5.4% from 5.2%) and USD/CAD (4.4% from 4.3%). USD/CNY trading extended the gap that emerged in the last survey over USD/CHF – the former had a 4.1% in 2019 from 3.8% in 2016, while the latter fell back to 3.5% from 3.6% previously. Probably the most significant increase in activity was in USD/HKD, although this probably reflected the latest focus on the Hong Kong peg, this pair’s share of activity rose to 3.3% from 1.5% in the previous survey.

Trading continues to be concentrated in the largest financial centres. In April 2019, sales desks in five locations – the UK, the US, Singapore, Hong Kong, and Japan – intermediated 79% of all foreign exchange trading, with the UK cementing its position as leading FX centre with 43.1% of turnover – the highest registered since the start of the survey in 1992 and up from 36.9% in 2016. Much of the UK’s gain appears to have come at the expense of the US, which saw its geographical share drop to 16.5% from 19.5%, however several Eurozone centres also suffered, most significantly Germany falling to 1.5% (from 1.8% in 2016), and France to 2% (2.8%). Switzerland did see an increase, rising to 3.3% from 2.4% in 2016.

The share of FX trading in the three leading Asian financial centres declined slightly to 20% in April 2019, driven mainly by relatively slower growth of activity in Singapore and Tokyo at 7.6% (down from 7.9%) and 4.5% (from 6.1%) respectively. Turnover in Hong Kong, however, grew at a higher rate than the global aggregate, raising its share in global turnover to 7.6% from 6.7%.

Several other FX trading centres also gained in prominence. In particular, mainland China recorded a significant rise in trading activity, to $136 billion in 2019, or an 87% increase since 2016. Mainland China thus climbed several places in the global ranking to become the eighth largest FX trading centre (up from 13th place three years previously) with 1.6% share of activity.

One interesting aspect of the data is that the share of cross-border trading in total turnover dropped significantly, to just 56% in 2019, down from 65% in 2016 – the lowest level observed since 2001. This was largely due to the Other Financial Institutions segment of the report, with these firms trading 51.1% of their volume with local counterparties (designated as the sales desk) compared to 35% in 2016. Non-Financial Institutions actually traded slightly less of their activity onshore in 2019 (51.5% compared to 58.5% in 2016), while Reporting Dealers traded 32.4% locally compared to 31.7% in the previous report.

The growth in trading with local counterparties was spread across products and could be the result of regulation or of something that will be revealed in the execution style statistics to be released with the full BIS report, a growth in relationship trading.

Overall, at $6.6 trillion, the latest benchmark for the FX market is probably higher than most expectations – the signal from the local FX committee surveys (which are reported in slightly different fashions) was for a number just short of $6 billion. The surplus increase probably reflects the growing importance of emerging markets which are not covered by the FXC reports. Either way, at a time when volatility is so low and there are questions over the viability of some business models in FX, this report serves as a timely reminder that FX is not going away, and it remains the biggest financial market in the world by some distance.

Colin Lambert

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