FX volumes on the up, but moving slowly

Despite showing month-on-month growth, foreign exchange volumes remain subdued, according to data released last week.

Average daily volume on Icap-owned EBS Spot for June was $147 billion, 31.85% down on June 2008 volumes, and 12.05% down on 2007. However, the spot-broking system experienced a number of records in individual currency pairs such as AUD/USD, USD/HKD and EUR/CAD, which recorded their highest volume months ever on the EBS platform. Icap said the stats reflected increased volatility in these currencies, with June 24 also seeing the highest volume ever traded in the EUR/SFR currency pair.

Meanwhile, the Chicago Mercantile Exchange's average daily volumes for foreign exchange fell by 16.43% in June to $88.59 billion on a notional basis versus June 2008. However, notional values were still 10.3% up on June 2007 values.

Dealers say volumes are undoubtedly lower but competition for business is forcing spreads to stay fairly tight, despite the fact the underlying liquidity isn't really recovering. According to a senior trader, the majority of the larger banks' order books are riddled with stop losses, which suggests the risk appetite might be there, but that whatever risk appetite there is is quite short term.

"There's a lot of gap risk but you just have to cope with it. We are used to illiquid markets and if you look at most results they are fairly positive, so dealers are obviously doing well at adjusting to different daily scenarios, whether that is because they have smart tools that can adjust to different trading regimes or good guys on the boards that can extricate themselves out a bit of pain in a tough illiquid market," he said.

Revealing average stats for the first time, Thomson Reuters said combined average daily spot FX volumes for trading over Thomson Reuters Dealing, Matching and Reuters Trading for FX services averaged $132 billion a day in June, $113 billion in May and $103 billion in April. The broker said June volumes were higher than preceding months, as there were fewer bank holidays and partly due to increased market activity. The broker did not disclose last year's comparative stats or stats in other FX products traded.

Meanwhile, Bloomberg's first-quarter results uncovered last week reveal Tradebook FX had experienced average daily volumes of $500 million since relaunching the platform at the end of November. Trading was suspended last autumn as it looked to replace AIG as its central clearer (FX Week, November 24, 2008). The company said at the time it was targeting $10 billion a day for the next year or so.