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Foreign Exchange

FX comment: Spot FX volumes are up. Or down

The central bank figures released earlier this week pointed to a continued increase in FX volumes. But the numbers were for April.

The other night I was out with some pals from the currency option market and they seemed to say that volumes had contracted dramatically in the last couple of months. “Fallen off a cliff”, was the expression they used.

It seems a little early for ‘summer holidays’ to take the rap for this supposed tumble in trading. Perhaps it’s to do with the weird moves, especially in options, that have left many market-makers so nonplussed that they have taken to sitting on the sidelines? Strangeness such as: depressed USD/JPY implied volatility with spot at the lows; USD/JPY risk reversals at almost unprecedentedly low levels of ‘yen calls over’; and the EUR/USD volatility curve steepening ahead of the CEBS data.

We highlighted the slump in spot FX volumes in June but looked at it from the angle of the record volumes in May (FX news: June volumes down). Looking afresh at, for example, EBS volumes, it’s apparent that June’s number was the lowest since January.

The spot market is reluctant to admit there’s any more fall-off in volumes than is to be expected for the time of year.

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