Daily currency volumes in London and North America contracted in October compared with a year ago, hammered by fallout from a raft of market manipulation scandals and banks' unwillingness to take on more risk, according to semi-annual surveys by the US and UK central banks released on Monday. The surveys followed previous studies by the Bank of England and New York Federal Reserve's Foreign Exchange Committee showing volume shrank in both London and North America in April 2015.
"The regulatory environment is not helping. Regulatory changes are having an effect on liquidity and hence volumes and flows," said Jeremy Stretch, head of currency strategy at CIBC World Markets in London. Daily volume in London was down 21 percent in October from the same period in 2014 to $2.15 trillion - the lowest turnover since October 2012, the BoE survey showed.
Volumes were down 13 percent in the six months to October 2015, as volatility in the currency markets waned in the second half of the year after witnessing a jump early in 2015 as the Swiss National Bank suddenly removed a cap on the Swiss franc against the euro in January. In North America, average daily turnover totalled $809.3 billion in October 2015, down 26 percent from a year earlier, and 8 percent lower than the average volume taken April 2015 survey, the NY Fed's FX committee data showed.
The NY Fed said the decline in forex volume was primarily driven by the spot market's turnover, which fell 12 percent since the April 2015 survey. The decrease in volume in North America occurred across most currency pairs, but was most significant in the euro/dollar and sterling/dollar pairs, accounting for 34 percent and 15 percent of the total fall, respectively.
In London, the survey showed turnover in euro/dollar fell 17 percent in the six months to October 2015 to $640.1 billion a day. The divergence between monetary policy in the United States and other major economies, along with political risk stemming from the Greek debt crisis, bolstered a recovery in trading in the euro over the past two years or so.