The survey shows “a continuation of the trend toward greater concentration of FX trading in the largest financial centers”, the BIS said.
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The rise was driven in large part by increased trading of swaps involving the Japanese yen, a testament of how Japanese investors have scrambled to escape punishingly negative yields in their country by flocking into foreign assets and then stripping out the currency risk. It is the first decline since 2001. However, much of that difference can be attributed to the strength of the dollar DXY, -0.35% which has risen by about 16% against its main rivals since 2013 (the survey’s results are ultimately denominated in greenbacks). After the yuan, the emerging market currency with the highest turnover is the Mexican peso with a 2.1% share, down from 2.4% in 2013.
Were there any other notable shifts in the currencies that are actively traded?
The yuan or renminbi was the world’s eighth most actively traded currency overall, moving up from the ninth position in 2013, according to the Bank for International Settlements’ triennial survey of forex activity.
Spot currency trading fell 19 percent to $1.7 trillion a day, its first decline since 2001. Its global market share doubled to 4 percent, and more than $200 billion of renminbi now change hands on an average day. The headline finding is that trading in foreign exchange markets averaged $5.1 trillion per day in April 2016, down from $5.4 trillion three years ago.
However, trading in various over-the-counter derivatives products increased. Outright forwards saw their share climb by 1 percentage point to 14%.
While sterling/dollar’s share rose to 9.2 percent from 8.8 percent three years ago, that was still down sharply from 13.4 percent in 2004, the BIS said. Turnover of fx swaps rose 6% to $2.4 trillion. The Parker Global Index of top currency funds’ returns has fallen in two of the past three years and is headed for another decline in 2016.
But the largest currency dealers appear to have regained some of the market share lost in previous years.
Growth was uneven among the smaller financial firms that control 51% of trading. Meanwhile, hedge funds and proprietary trading firms have cut back on currency trading, account for just 8% of daily turnover, down from 11% in 2013. Now, 77% of currency trading is intermediated in sales desks in just five countries-the United Kingdom, the U.S., Singapore, Hong Kong and Japan-up from 75% in 2013.
The BIS will release its final results of its survey later this year.
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When it comes to over-the-counter interest-rate derivatives, however, the US has overtaken the U.K.as the top financial center-in three years, its share of global activity has risen to 41% from 23%-even before Britain voted to leave the European Union. Another hike could push the dollar even higher.
