Currency Trade Reaches $5.3 Trillion a Day Amid Yen Turnover

Foreign-exchange trading surged to an average $5.3 trillion a day in April 2013, boosted by greater yen volumes, the Bank for International Settlements said.

Trading increased 33 percent since the same period in 2010, the BIS said, citing a survey of currency traders it runs every three years. That’s an acceleration from a 20 percent increase in the three years through 2010. The yen had the biggest jump in trading activity among major currencies, while the euro’s role as the second-most traded currency was reduced. Emerging-market currencies increased their share, with the Mexican peso entering the top 10 most-actively traded currencies.

Volumes in the global foreign-exchange market are increasing as traders expand activities in developing nations and banks focus on the currency markets while stricter regulations after the financial crisis threaten earnings from other divisions. Transactions jumped this year as diverging economies stoked increasing swings in exchange rates.

“Post the financial crisis in 2008, foreign exchange has been a very interesting asset class for banks and investors to focus on because of the liquidity and diversity,” said Vincent Craignou, the London-based global head of foreign exchange and precious metals derivatives at HSBC Holdings Plc. “It has also become extremely competitive because a lot of banks have been keen to grow market share.”

Dollar Grip

The euro slipped 0.7 percent to $1.3116 as of 2:02 p.m. New York time, after reaching the weakest level since July 19. The dollar strengthened 0.4 percent at 100.11 yen after climbing to the most since July 25. The euro depreciated 0.3 percent to 131.31 yen.

The U.S. dollar increased its lead as the most-traded currency in the three years through April, the BIS said. It was on one side of 87 percent of all trades, an increase of 2 percentage points since the previous survey.

Yen trading surged 63 percent between 2010 and 2013, according to the BIS report, with the most notable increase in activity occurring between October 2012 and April 2013. That period preceded the announcement from the Bank of Japan on April 4 that it would buy an unprecedented 7 trillion yen ($71 billion) of bonds a month in an attempt to achieve a 2 percent inflation goal within two years. The yen slid more than 15 percent versus the dollar from the end of September 2012 through end March, and tumbled to the lowest versus the dollar since October 2008 in May of this year.

Euro Slump

The increases in trading is boosting bank earnings. Goldman Sachs Group Inc., based in New York, said in July that its currency-trading operation had “significantly higher” revenue in the second quarter than in the year-earlier period. Credit Suisse Group AG, Switzerland’s second-biggest lender, said July 25 that increased currency volatility helped boost second-quarter earnings.

The euro’s share of the foreign-exchange market slumped to 33 percent, the smallest share since the introduction of the 17-nation common currency, from 39 percent in April 2010, the Basel, Switzerland-based BIS said today.

The decline followed the euro-area’s debt crisis, which left the region’s economy in a record-long recession and pushed the bond yields of Spain and Italy to the highest since the common currency was introduced in 1999.

Greece, Ireland and Portugal all entered financial-assistance programs since the previous BIS survey. The European Central Bank introduced unlimited three-year loans under its Longer-Term Refinancing Operation to ease a banking crisis, as well as promising to buy the bonds of highly-indebted nations that requested assistance.

Chinese Yuan

The BIS was formed in 1930 and acts as a central bank for the world’s monetary authorities. Its Central Bank Survey of Foreign Exchange and Derivatives Market Activity is based on data from 53 jurisdictions.

The role of the Chinese yuan in foreign-exchange trading “surged in line with efforts to internationalize the Chinese currency,” the BIS said. Turnover in the Chinese currency jumped to $120 billion a day from $34 billion a day in April 2010 as it became the ninth most-actively traded currency with a 2.2 percent share of global volumes.

Trading became increasingly concentrated within the world’s major financial centers during the survey period, the BIS report showed. The U.K., U.S., Singapore and Japan accounted for 71 percent of foreign-exchange trading, up from a combined share of 66 percent through April 2010. The U.K. increased its role as the largest center of foreign-exchange activity, with 41 percent of global turnover, compared with 37 percent in 2010. Singapore overtook Japan to become the world’s third-largest trading center.

Hedge Funds

Other financial institutions, which include hedge funds, institutional investors and other non-dealers, added the most growth to foreign-exchange trading, the survey said. Regional and smaller banks that are the clients of dealers accounted for about 24 percent of global currency turnover. Proprietary trading firms, hedge funds and institutional investors each made up about 11 percent of trading. Sovereign-wealth funds and central banks accounted for less than 1 percent, the BIS said.

Interdealer trading increased 34 percent to $2.1 trillion a day in 2013, compared with $1.5 trillion a day three years earlier, a share that was “roughly constant,” the BIS said. Trading by non-financial customers, which includes governments and corporation, with dealers fell to $465 billion a day this year from $532 billion a day in 2010.

Currency Swaps

Spot foreign-exchange trading grew 38 percent to $2 trillion each day, which was about 40 percent of the increase in global currency activity between this year and 2010, the BIS said. That segment of the market expanded 48 percent in 2010 from three years earlier.

Foreign-exchange swaps grew 27 percent in 2013, with daily volume of $2.2 trillion, or 42 percent of all currency transactions. Swaps accounted for 44 percent of transactions in 2010, the survey said. Trading in currency forwards and options increased “more strongly,” the BIS said. Options trading grew 60 percent as the two segments taken together accounted for almost 25 percent of global currency-trading growth since 2010.

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