Spreads widen as liquidity worsens in FX

Scandinavian and emerging markets units worst affected

structural

Liquidity in currency markets has declined significantly as banks' ability to warehouse risk has been diminished by regulation, capital requirements and the intense focus on how they manage orders, particularly around benchmarks, say market participants.

The worst affected units include Scandinavian currencies, but spreads have also widened by as much as 30% in the euro and the yen when traders want to execute in size, says Peter Gorra, head of FX trading at BNP Paribas in New York.

"It's risk

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