Spot FX

Spot FX volumes show impressive year-on-year growth

NEX reported a 5% decrease in spot FX trading activity as its volumes dropped from $101 billion in May to $96 billion in June. This follows a 21.7% increase in May from April. Year-on-year volumes are up a healthy 15.7%.

Thomson Reuters’ spot FX volumes have seen a small rise of 1.9% to $109 billion in June. It has experienced month on month growth since April when it recorded $95 billion, its lowest ADV since December 2017. June’s ADV represents a 17.2% increase when compared the same period in 2017.

Cboe FX’s spot volumes suffered the most in June, dropping 7.3% to $38 billion, compared with May’s $41 billion. Year-on-year painted a more positive picture for the platform with growth of 36% in spot FX volumes.

Spot FX volumes on Fastmatch fell by around 4% from $23 billion in May to $22 billion in June. This represents a 10% increase year on year.

FXSpotStream experienced the biggest increase this month, rising 7% from $28 billion in May to $30 billion in May. This represents a substantial 50% growth from the $20 billion recorded in June 2017.

Spot FX

Insight

So far this year, electronic trading platforms have seen strong performances in the spot FX market. June 2018 was no different with overall volumes across Thomson Reuters, FX SpotStream, Nex, Cboe FX and Fastmatch up 21% on June 2017.

Spot FX platforms have bounced back after a slow start to Q2. In April, all of the platforms recorded a decrease in trading activity, with the exception of Fastmatch.

Following large increases for all platforms in May 2018, we have seen a mixed picture of trading activity for the five spot FX platforms in June.

Key currency pairs came out of the wait-and-see mode they experienced in April. This is reportedly because volatility increased in May and June due to rising geopolitical tensions, concerns about trade wars and the prospect a global economic growth boom is nearing its peak.

A key focus over the past month or two was on the regulatory side with the Global Foreign Exchange Committee (GFXC) meeting taking place in South Africa on 27 June. At the meeting in Johannesburg, the GFXC appointed new Chair, Simon Potter, and Co-Vice Chairs, Adrian Boehler and Akira Hoshino.

It also revealed that more than 300 institutions have now signed up to the FX Global Code.

The GFXC has established a new group to deepen engagement with the buy-side, so all eyes will be on these institutions over the coming months.

Future predictions

The US-China trade war came to fruition with a first round of tariffs on $34 billion of Chinese imports on July 6, followed by a second round on $16 billion of imports.

The US’s trade partners including the EU, Canada and China are set to respond to latest U.S. trade barriers with retaliatory tariffs of their own. Starting in July, we could be getting dangerously close to a full-blown trade war.

Hopefully policymakers can put economics ahead of politics and come to a resolution to ensure unimpeded trade flows.

SEB chief EM strategist, Per Hammarlund, told FX Week that this trade spat could support the dollar in the short term, given the risk-off sentiment.

But, over the longer term, the event will undermine US growth, as well as its economic leadership, and weigh on EM currencies “for years”, Hammarlund says.

“Once countries lock themselves into a tit-for-tat battle, they will find it very difficult to get out of the spiral.” “If growth continues to slow, the EM FX sell-off will be prolonged, even if markets would see a temporary rebound if the US and China reach an agreement,” he says, adding that any interest rate hikes by the Federal Reserve will trigger a sell-off in EM currencies.

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