Since the global financial crisis, most FX markets have enjoyed a decade of extremely low volatility. While there have been initiatives around regulatory compliance, the market has otherwise been quiet, with volatility touching all-time lows as recently as January, exacerbated by a depressed yield curve.
Clients simply had less need to trade in that kind of environment, explains Jason Vitale, global head of FX at BNY Mellon Markets.
Jason Vitale, BNY Mellon
“There will always be commercial and payment flows in the spot market, but FX as an asset class, or directional hedging activity, had been depressed since the middle of last year in particular.”
Now it’s different. Equity markets have been left reeling from big sell-offs since the end of January, but FX volumes have rocketed.
Integral reported a 40% increase in average daily volumes in March (driven mainly by euro trading); FX spot volumes on CLS jumped 24% in February; and CME Group’s FX average daily volume reached its highest ever level.
Before January there had been some debate among banks as to whether the benign market was a cyclical or structural trend, but everything changed once details of the coronavirus emerged.
Fast forward two months, and volatility is at elevated levels and clients who did little or no FX trading last year are suddenly spending a lot