Tuesday, July 27, 2010

Forex Trade Returns to Precrisis Levels, Nears $4 Trillion Daily

By KATIE MARTIN And BRADLEY DAVIS

Daily trading volumes in Australia soared by 54% in the year to April. Above, pedestrians are seen reflected on a foreign currency exchange board in Sydney.

The global currency-trading business expanded at a double-digit rate in the six months to April this year, data from key monetary authorities around the world showed Monday.

The strong growth puts the foreign-exchange market on track to top a record $4 trillion in daily trading volume, extending its recovery after the global recession caused activity to dry up in the first part of 2009.

Worries over the euro zone's sovereign debt crisis and concern over the pace of the global recovery are likely to keep volatility—the main driver behind the currency market's recent trading rebound—high. At the same time, the growth in Australian trade volume is a reminder of a deeper underlying shift as investors and companies move their exposure from the advanced economies of Europe and the U.S. toward Asia and emerging markets.

Still, that is a longer-term trend. For the most recent half-year, "no question, front and center was the euro," said Jeff Feig, managing director and global head of Group of 10 foreign exchange at Citigroup and the chairman of the Foreign Exchange Committee sponsored by the Federal Reserve Bank of New York.

"The volume growth was really a result of the volatility and the fact that you had real end users actively hedging their exposures." Worries over the euro zone's debt crisis prompted corporations and other investors to shield themselves from sharp swings in the common currency by turning to the perceived safety of the dollar, yen and Swiss franc.

Currency trading flows in the U.K., the world's biggest dealing hub, grew by 15% in six months to April, taking the daily average to $1.747 trillion, data released by the Bank of England showed Monday.

In the U.S., daily currency flows grew by a slightly more modest 12% to $754 billion in the six months to April, but that total was just shy of the record $762 billion seen in October 2008. The total includes spot transactions as well as currency derivatives.

London grabs roughly one-third of global currency-trading flows, with New York taking around one-fifth. Other trading hubs around the world account for the remaining half. Central banks and other monetary authorities in each of the major trading center compile trading volume statistics on an annual, or semiannual basis.

Daily trading volumes in Australia soared by 54% in April from a year ago, taking the total to $191.2 billion as the Australian dollar, with its commodities-related exposure to China, was traded as a proxy for the Chinese yuan, analysts said. Japanese flows grew by 16% to $294.1 billion over the same period.

The world-wide daily foreign-exchange market should now stand at more than $4.1 trillion, according to an HSBC report. That is a 28% jump from the $3.2 trillion figure established in 2007 by the Bank for International Settlements in its latest survey. The BIS is due to update the official figure later this year. Still, the pace of growth is slower than the previous three-year period, when volumes grew 63%.

In daily trading action late Monday in New York, the euro was at $1.2997, from $1.2918 late Friday; the euro advanced as far as $1.3006. The dollar was at 86.89 yen from 87.45 yen late Friday, while the euro was at 112.91 yen from 112.98 yen. The U.K. pound was at $1.5485 from $1.5432. The dollar was at 1.0485 Swiss francs from 1.0527 francs.
—Michael Casey contributed to this article.

Write to Katie Martin at katie.martin@dowjones.com and Bradley Davis at bradley.davis@dowjones.com

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