Weekly review: Regulation and FX; don’t fall for the currency wars hype

By:
Peter Garnham
Published on:

This week we have taken an in-depth look at the proposed rules on uncleared FX swaps and forwards, and the FX industry’s arguments against some of the potential changes.

In a piece timed as the deadline for comments on a final consultative published by the Basel Committee on Banking Supervision looms, we get the views of some of the main players, such as James Kemp from the GFMA’s global FX division, and take an unashamedly detailed look at what is in store for regulation on both sides of the Atlantic.

On a not unrelated note, we did some digging and found that LCH.Clearnet was set to become the clearing house of choice for the FX non-deliverable forward (NDF) market when regulation comes in.

The firm, which this week expanded the number of currencies it can clear, concurs, saying it is leading the market in NDF clearing.

EuromoneyFXNews also got down to the TradeTech FX conference in London, where delegates were less than impressed by proposals from the EUR parliament to impose a 500-millisecond speeding limit on high-frequency trading.

We also found out why some think transaction cost analysis is set to go 24/7 in the currency market and caught up with William Goodbody, managing director at Knight Capital’s multi-dealer platform Hotspot FX.

Goodbody tells us that users are back on to Hotspot after volumes plunged in the wake of the near collapse of Knight Capital, and about the platform’s expansion plans.

Elsewhere in the industry, there was news about a tie-up between Barclays and online broker FXCM in retail FX. EuromoneyFXNews spoke to Paul Inkster of Barclays Stockbrokers about why the bank decided not to keep the whole project in house.

Currency wars

Meanwhile, in the market, euphoria – after action from the Federal Reserve, the European Central Bank and the Bank of Japan in recent weeks – turned to Europhobia, as attention predictably turned back to Europe’s debt crisis.

EURUSD was unable to hold above $1.30, but that did not stop those canny German corporates for turning bullish on the single currency – at least in the short term – for the first time in more than a year. As we have noted, they are worth listening to, if only because their currency-forecasting powers have consistently outperformed hedge funds and other managers during the past few years.

Others are not so sanguine about the future of European monetary union, with the best line coming over breakfast this week at Russian bank VTB. Their chief analyst described the eurozone as a "debtor’s prison with a German guard", a bleak if not wholly inaccurate description.

Still, if you need cheering up, then we can declare that currency wars mark two are not about to flare up. Despite the rising rhetoric – and a good few column inches – QE3 is different this time.

As Morgan Stanley explains, the world is a different place in 2012 and US investors are unlikely to pour money abroad with the same abandon witnessed in 2010 and 2011.

So, it’s peace, not war on the currency front, and as lovers not fighters, that suits us here at EuromoneyFXNews down to the ground.