Currency trading rose in the six months through April across major global centers, from Tokyo to London to New York, as investors grappled with monetary-policy whiplash, surveys from central banks showed.
In the UK, the world’s largest foreign-exchange market, average daily volume rose 5% from October to $2.21 trillion, led by a 27% jump in dollar-yen transactions, according to the Bank of England’s Foreign Exchange Joint Standing Committee. The volume dropped 9% from April 2015. North America’s average daily volume rose to $893 billion from $809 billion in October, the Federal Reserve said. In Japan and Australia, total turnover, which includes spot, forwards, options and swaps, rose 5.1 and 6%, respectively, Bloomberg reported.
Decisions from the Bank of Japan and the Fed that caught traders leaning the wrong way may have contributed to the increase, analysts said. Fewer Fed officials expect the central bank to raise interest rates more than once this year, policy makers’ projections showed last month.
“It’s all about monetary policy,” Ned Rumpeltin, European head of currency strategy at Toronto Dominion Bank in London, said in an e-mail. “We saw a considerable degree of expectation build that the BoJ would deliver another round of easing at its policy meeting in April. When these hopes were dashed, any outstanding dollar-yen long positions came under considerable pressure.”
Yen Shift
Trading in the yen also surged because the currency had been cheap relative to its peers, said Andres Jaime, a foreign-exchange and rates strategist at Barclays Plc in New York.
Japan’s currency strengthened from almost 122 per dollar in January to below 107 in April. Yet, based on a metric of purchasing-price parity, it’s still undervalued against the dollar. The currency appreciated below 100 per dollar in June, fueled in part by haven demand spurred by the UK vote to leave the European Union. The yen strengthened 0.1% to 105.73 per dollar in Tokyo Tuesday.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, was little changed after climbing 0.1% on Monday.
In Singapore, turnover averaged $419 billion in April, a 36% increase from six months before, the nation’s Foreign Exchange Market Committee said in a statement.
Daily average turnover of currency forwards jumped 28% to $61.8 billion in April in Japan and 19% in Australia, the data showed.
The surge in dollar-yen trading and currency forwards exposure coincided with an increase in price swings. Volatility among Group-of-Seven currencies rose to an average of 10.35% in the six months through April, compared with 9.85% in the prior six months, JPMorgan Chase & Co. index data show.
Japanese exporters may have increased use of currency forwards amid volatility, analysts said. Insurers including Nippon Life Insurance Co. and Dai-ichi Life Insurance Co. buy overseas bonds using currency hedges.
While turnover in London rose from the previous six months, it fell 9% from a year earlier.
