With the Bank of International Settlements due to release its 2016 Triennial Survey results next month, many market participants are reflecting on how the foreign exchange market (FX) has evolved over the past three years and considering how it has impacted volumes.
A number of high profile black swan events have rocked currency markets of late – injecting significant spikes in volatility and overall market turbulence. The shock decision by the Swiss National Bank to remove the cap on the Swiss Franc in January 2015 was a case in point. The event saw trading activity jump, whilst the recent UK referendum result caused Sterling to plummet to a 31-year low. However, there have also been several phases of low volatility, which has had a significant impact on volumes, as had increasing capital and regulatory pressures on banks.
The unprecedented rise of the Chinese renminbi has also been a significant trend, breaking into the top five most-used payment currencies according to SWIFT last year. The renminbi has also been designated as one of the IMF’s reserve currencies and is expected to be added to the Special Drawing Rights basket in October 2016 – marking an important milestone in the currency’s internationalisation.
The market landscape has continued to shift with several new players emerging in the traditionally bank-dominated FX market. The 2016 Euromoney FX survey highlighted the surprisingly rapid growth of non-bank liquidity provision, with new firms such as XTX Markets acquiring a significant portion of market share for the first time.