Foreign exchange trading volumes have risen sharply since the start of this year, new data showed on Thursday, as investors ramped up bets on a weaker dollar and uncertainty about the end of the era of cheap money stoked volatility, Reuters reports.
Foreign exchange volatility has slumped in recent years as record levels of liquidity provided by central banks calmed markets and left investors with fewer ways to wring a profit from trading currencies.
But the continued depreciation of the dollar into this year, accelerated by the U.S. Treasury Secretary’s comments that the United States welcomed a weaker dollar, as well as signs that central banks will soon begin dialing back their stimulus, have fired up the currency markets.
CLS, a major settler of trades in the foreign exchange market, said the average daily traded FX volume submitted to it had risen to $1.805 trillion in January, up 24 percent from a year earlier and up 15.6 percent from December levels.
“This year we’ve observed a much more substantial increase as FX volatility has risen. For the last six months of 2017, we saw a broader trend of year-on-year increases... compared to 2016, but in January the market has really taken off,” said David Puth, CLS’s CEO.
CLS data showed trading had accelerated further in early February, possibly as the equity sell-off starting at the end of January increased volatility even more.
In the first four days of last week, Feb. 5 to Feb. 8, volumes rose by a further 14 percent over January’s numbers to $2.054 trillion, CLS said.
Currency market swings, however, have been far more measured than in stocks, with volatility still below long-term average levels.
Thomson Reuters said earlier this week that FX trading volumes on its platforms had hit an all-time record high in January, the first month following the introduction of sweeping European regulations, known as MiFID II or Markets in Financial Instruments Directive II.
Average daily volumes topped $432 billion in January compared with an average of $407 billion, the company said.