Sterling volume boosted to record high; North America turnover drops

Tortuous Brexit negotiations helped send daily trading volumes in Britain's pound to a record high last year, Bank of England data showed on Tuesday.

Increased activity in sterling, as well as more FX swap turnover, also sent the UK's overall foreign exchange trading volumes to a record $2.88 trillion per day across all currencies, the BoE said in a survey of London's FX industry, the world's biggest. That broader figure was up 11% on 2018.

The UK central bank conducts two such surveys per year, in spring and autumn, and the latest one compared data from October 2019 with October 2018.

In contrast, daily currency volumes in North America dropped to $889.3 billion in October 2019, down 10.7% compared with a year earlier, according to a semiannual survey by the New York Federal Reserve's Foreign Exchange Committee released on Tuesday.

The New York Fed said 21 financial institutions active in the North American FX market were invited to contribute to the October data. FX spot transactions in October 2019 fell 21% from a year ago to $358.3 billion, the New York Fed survey showed. All FX transactions in the region, except for over-the-counter options, which grew 6.2%, showed a decline across the board year-on-year.

North America's FX market has been hampered by low volatility, which has pushed volume lower and squeezed profit margins for the industry's players. That has frustrated currency traders who profit when there are huge exchange rate swings because this prompts demand from clients to hedge their currency exposure.

Meanwhile, the BoE's findings were in line with the Bank of International Settlement's triennial FX survey published in late 2019, which showed record global FX trading volumes due to the growth of FX swaps, and London cementing its position as the biggest centre for trading currencies. The BoE said on Tuesday that rising volumes of FX swaps, outright forwards and non-deliverable forwards had offset declines in spot and options trading.

Although FX volatility has been low, sterling was the outlier to that trend last year as developments in the Brexit saga drove wild swings in the currency. "The increased levels of trading in sterling pairs is hardly a surprise, given it has effectively been a proxy for one of the most significant political events in a generation. However, the decline in dollar/yuan is larger than most market observers probably expected," said Dan Marcus, CEO of trading platform ParFX.

Trading in sterling/dollar jumped 33% year-on-year to $431 billion on average per day in October, accounting for 15% of all transactions in London's market, the BoE said. That was up from $322 billion and a 12.6% share in October 2018.

Last October was the month that nailbiting negotiations between Brussels and London culminated in a new EU withdrawal deal before Prime Minister Boris Johnson called a national election.

The sterling/dollar pair also posted the largest increase in North American daily volume, with an increase of $21.8 billion across all instruments, according to the New York Fed survey.