Dealers dismiss UK euro entry

But with the mean and median of the 71 responses at 2010, it seems the bulk of forex dealers have put their optimism aside to join the consensus of economic opinion in the UK.

The poll, carried out by industry body ACI UK, interviewed delegates signed up for this week’s ACI European forex congress in London. Also examining delegates’ views on the future of market-making in FX, euro/dollar’s prospects for the coming year, and the impact of the expanding European Union, the poll reveals a healthy level of divergence among European dealers – a finding that possibly reflects the unprecedented level of uncertainty and volatility seen in the currency markets so far this year.

Most surprising is the wholesale dismissal of a much-touted current theory in the forex markets: that market-making will soon become the preserve of just a handful of global mega-banks as consolidation and the rising cost of entry to the forex markets continue.

But instead, poll respondents indicated that they expect the mid-tier – and even the lower-tier – banks to continue making prices in foreign exchange for at least another five years.

In that timeframe, more than 70% of respondents think there will be between 10 and 100 banks market-making in FX – with the median of the total sample at 25. Just over a quarter of all respondents’ expectations lie between 20 and 30 banks.

Only one respondent thought the number of banks market-making in FX in five years’ time will be under five.

That’s good news indeed for the smaller and niche banks that top players expect to bow out of market making to become their customers for foreign exchange.

The outlook for the world’s most heavily traded currency pair, euro/ dollar, is equally tumultuous, according to the poll.

Estimates for the currency pair’s peak in the next 12 months range from 1.23 – not far off the pair’s rate of just over 1.20 at the end of last week – to 1.50.

More than half of the responses, however, were between 1.25 and 1.30, and more than 20% picked a rate over 1.35. The current 12-month consensus forecast on the FX Week Currency Forecasts Table is 1.22 (see page 20).

Meanwhile, there is good news for proponents of the enlarged European Union, which expanded to 25 members on May 1, with another five – Bulgaria, Romania, Turkey, Croatia and the former Yugoslav republic of Macedonia, in the pipeline.

Just over half – 54% – of respondents think the growing EU is beneficial to the euro, going against much negative press about the inclusion of economies such as Poland and Hungary in European economic and monetary union.

The result reveals a degree of optimism not entirely expected from forex dealers, as – with sterling’s prospective entry – the more countries that are set to join the single European currency, the fewer currencies there will be to trade, with an anticipated negative impact on FX trading jobs.

Methodology: ACI UK surveyed delegates signed up to attend this week’s ACI European congress in London in late April and early May. 71 delegates responded.

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