Weak Equity Markets Drive Currency Trading To Record Volumes

by Phillip Morton, Investors Offshore.com

30 September 2004

Trading on the world's foreign exchange markets has leapt to record volumes, driven by renewed interest in currency as an asset class, and growth in hedge funds specialising in currency trading.

Average daily turnover rose to $1.9 trillion in April 2004, up by 57% at current exchange rates and by 36% at constant exchange rates, more than reversing the fall in global trading volumes between 1998 and 2001, according to a three-yearly survey by the Bank of International Settlements.

In addition, average daily global turnover in OTC (over the counter) derivatives such as currency options and interest rate swaps increased to $1.2 trillion in April 2004, a rise of 112% at current exchange rates and of 77% at constant exchange rates, as compared to April 2001.

Disappointing equity returns and low bond yields have been partly responsible for the resurgence in currency trading, the BIS surmised, with investors attracted by some strong trends, especially as the US dollar has weakened.

Geographically, the spread of currency trading has changed little since the last BIS report and London continued to be the most active trading centre, capturing 31% of total turnover, followed by the United States (19%), Japan (8%), Singapore (5%), Germany (5%), Hong Kong SAR (4%), Australia (3%), Switzerland (3%) and France (3%).

However, the dollar continues to dominate as the world’s foremost currency, and was involved in 89% of all currency trades.

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