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Foreign Exchange

Volumes: Spot the difference

Various semi-official bodies released volume figures this week, providing a useful picture of the health of the market.

The Foreign Exchange Committee, which meets under the auspices of the New York Fed, reports that average daily turnover in October of 2008 of all FX instruments rose 8.7% to $762 billion when compared with a year earlier. However, not surprisingly, the level of activity in swaps and options declined, falling 16.4% and 35.4% respectively. In contrast, spot volumes were 27% higher. According to the FXC, average daily ticket volume rose 80.6% versus October 2007, and the average trade size fell to $1.8 million from $3 million, showing the impact high-frequency trading had on the market.

The Joint Standing Committee, which meets under the auspices of the Bank of England, reports that total FX turnover in the UK FX market rose 21% from a year earlier to $1.679 trillion. This was 8% lower than April 2008. Spot volumes rose by 43% on the year, but swaps declined by 10% and option volumes fell by 12%.

Overall, the level of activity is astonishing given the excessive volatility seen in October 2007. As has already been reported, volumes did fall off in December 2008, which is nothing out of the ordinary. The likely release of monthly volumes for January from the likes of CME and Icap next week will give better indications about the market’s health as we run into 2009.

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