Despite record-breaking temperatures across Europe and the US last month global spot FX volumes cooled off, with NEX, Thomson Reuters, Cboe FX, Fastmatch and FXSpotStream reporting decreases in average daily volumes (ADV).
NEX reported a 15% decrease in spot FX trading activity as its volumes dropped from $96 billion in June to $82 billion in July. This follows a 5% decrease in June from May. Year-on-year volumes remain the same.
Thomson Reuters’ spot FX volumes suffered a 14% decrease to $94 billion in July, its lowest recorded ADV of 2018. However, July’s ADV represents a 6.8% increase when compared the same period in 2017.
Cboe FX’s spot volumes encountered a 12% drop to $33 billion, compared with June’s $38 billion. Year-on-year painted a more positive picture for the platform with a 22% rise in spot FX volumes.
Spot FX volumes on Fastmatch fell by around 9% from $22 billion in June to $20 billion in July. This represents a steady 11% year-on-year when compared to July 2017.
FXSpotStream suffered the least this month, decreasing 8.7% from $30 billion in June to $28 billion in July. This represents a substantial 56% growth from the $18 billion recorded in July 2017.
CLS’s spot volumes also dropped 16.5% from June to $416 billion and were down 8% compared to the same period last year.
*All figures in US$
The summer lull weighed on spot FX volumes in July with major trading platforms all recording decreases of over 8.5%.
After a busy Q1 for trading platforms, firms are now returning to more regular levels of trading activity.
July saw the dollar rise against a basket of currencies due to continued fears over a trade war and expectations of US interest rate hikes.
The annual ‘summer slowdown’ means the results shouldn’t be interpreted as a worrying decline, but rather a seasonal break in trading activity.
On a more positive note, newly-released data shows FX trading volumes in London, the world’s largest currency hub, hit a new record in April. Over $2.72 trillion of trades were booked a day on average – beating the previous peak set in October 2014 – and is a strong vote of confidence in London as a global trading hub.
Looking beyond the UK, data from central banks in the USA, Japan, Singapore, Australia and Canada also paint a very positive global picture – suggesting trading activity is approaching close to USD 6 trillion a day. This would mark a new record for global trading activity.
So far in 2018, the FX market has reminded everyone of the difficulty in forecasting exchange rates as things can change abruptly and continuously.
All eyes are on the USA and China, which look set to continue their aggressive rhetoric as the trade dispute continues.
The Trump administration has threatened to slap more tariffs on Chinese goods. In response, the Chinese Government announced a list of possible tariffs ranging from 5% to 25% on $60 billion worth of U.S. agricultural, metal, and chemical products.
The trade war is fast becoming a currency war, with Trump accusing China and the EU of being ‘currency manipulators’ in an effort to gain an edge over the US by making their goods and services cheaper to buy in the US. Expect to see fluctuations in USD/CNY and EUR/USD over the coming weeks.
In Europe, the focus is on the Turkish lira. According to one analyst, buying the lira is like “catching a falling knife.” The currency has shed more than a quarter of its value against the dollar this year.
It will be interesting to see if the Central Bank of Turkey raises interest rates against the wishes of President Erdogan – an “enemy of higher interest rates” – in a bid to revive the lira’s value. Strategists at ABN AMRO believe it is unlikely that we’ll see any significant hike before Q4.