Spot FX

August FX activity boosted by EM sell-off

As the summer lull comes to a close, it has become apparent that there was no ‘sleepy summer’ for spot FX traders this year. Data from ECNs that publicly report their volumes has revealed that trading activity was largely up across the board in August.

NEX reported a 3% increase in spot FX trading activity as its volumes increased from $81.9 billion in July to $83 billion in August. Year-on-year volumes saw a slight increase of 2%.

Thomson Reuters’ spot FX volumes remained flat at $94 billion, but August’s trading activity represents a 14.7% increase when compared to the same period in 2017.

Cboe FX’s spot volumes rose by 3.9% from July to $34.5 billion. Year-on-year growth was an impressive 27.3%. The venue has now had 12 months during which ADV has been in excess of $30 billion per day.

Spot FX volumes on Fastmatch fell by around 2.5% from $20 billion in July to $19.5 billion in August. This follows a 9% decrease the previous month. However, year-on-year comparisons show an increase of 20%. Although it didn’t see an increase in ADV, its FX Tape saw a record amount of activity, averaging $83.6 billion a day in August.

FXSpotStream reported an ADV of $28.4 billion, up 2.5% from July and up a whopping 47.6% from August 2017.

CLS reported a 2.2% increase in August’s ADV to $425 billion. However, this is down 1.9% for the same period last year.

Spot FX*All figures in US$


Insight

After a very slow start to the summer trading season in July, data shows that most platforms experienced a slight recovery in spot FX volumes in August.

Despite the seasonal decline, trading activity in the market was stable, aided by volatility in emerging markets.

Once again, political events have played a major role in volatility. After the Turkish central bank lost its independence, the lira went into freefall.

The Argentinean peso was another currency in the crosshairs of currency traders. At the tail end of August, the central bank ratcheted up interest rates to a whopping 60%. Despite this drastic action, the currency continued to plunge 12%.

The Russian ruble experienced its worst month since April against the dollar, on the back of US announcements to introduce new sanctions against Russia

The decline in these currencies helped trigger a broader sell-off in the developing world’s markets, with JPMorgan’s emerging market currency gauge sliding 1% at one point to a new record low.


Future predictions

Industry insiders think that what happened in August is a sign of things to come over the next few months.

Political factors are continually weighing on currency movements. With prospective rate hikes from the US Federal Reserve coming into play before the end of the year and Trump’s Twitter account continuing to wreak havoc, many expect volatility to continue.

Some predict that the lack of stability and transparency in Turkey will drive more business away from the lira to ‘safe-haven’ currencies.

Closer to home, Brexit negotiations remain the topic of focus. There seems to be no end to near-term uncertainty; in fact, a Reuters poll predicts a no-deal Brexit could see GBP fall as much as 8%!

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