Surge in Forex Trade Volumes Driven by Demand for EUR/GBP and GBP/USD Pairs
- Written by: Gary Howes
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Rising demand by investors to trade the euro against the pound (EUR/GBP) and the pound against the dollar (GBP/USD) has turnover in the foreign exchange rate markets reach new year highs.
The latest FX Flow Report from Deutsche Bank, which draws on data from Deutsche Bank’s market-leading Autobahn trading platform, shows FX volumes spiked across the board in the week running between 13 and 17 October.
In a stark contrast to the illiquid summer months volumes in the majority of G10 FX currencies rose to above their 90th
percentile relative to their own 5-yr history.
"The largest changes where in GBP crosses, where volumes rose more than 50% in both EUR/GBP and GBP/USD compared to the previous week," says Daniel Brehon at Deutsche Bank.
The above graph shows how demand for pound to dollar and euro to pound flows are driving FX volumes higher.
It would appear that Wednesday the 15th was the peak of trading activity in FX, coinciding with the “flash crash” in US treasuries.
"Looking at tick-by-tick data, the 2 hour period after Wednesday midday GMT accounted for more than 10% of total traded weekly volume in EUR/USD and USD/JPY," says Brehon.
Volumes have up again mid-week as the Bank of England releases its latest set of policy minutes.
At the time of writing the pound to euro exchange rate (GBP/EUR) is 0.24 pct higher at 1.2700. The pound to dollar exchange rate (GBP/USD) is at 1.6070.
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Swiss Franc in Demand
Another notable feature of the flow data is a large rise in CHF volumes.
The share of both USD/CHF and EUR/CHF in total G10 currency flow has close to doubled over the summer now comprising about 5% of total FX volumes.
Pound Slumps, Then Recovers
We have witnessed some extremely volatile times for the pound sterling as of late.
Charles Purdy at Smart Currency Business tells us:
"Having plunged the depths in the middle of last week sterling ended the week on a positive note especially against the euro which could be down to an improved long-term outlook following Bank of England member Haldane saying that a mid-2015 rate hike is not out of the question."
However, as mentioned mid-week saw the dollar feel fresh pressures as a guaranteed early rate rise was brought into question by softer US economic data.
Then it was the turn of the euro which was crushed by the pound on Thursday as Eurozone sovereign yields spiked higher.
Investors decided they were over-exposed to the under-performing Eurozone economy and promptly sold peripheral sovereign bonds and the euro alongside.
Data Will Determine GBP Levels This Week
We could be in for yet further volatilty in the pound to euro and pound to dollar exchange rates this week.
Purdy tells us:
"A mixture of UK data is to be released in the second half of this week which will keep markets and commentators on their toes. Wednesday sees the minutes released from the latest Bank of England (BoE) meeting.
"Here we will see which way each member voted and, more importantly, if any more members have voted to increase interest rates this time around. Following several recent dovish statements from voting members, and recent poor performance from the UK economy, it is unlikely we will see any change from the previous meeting.
"Aside from this, we will see retail sales data released on Thursday which are expected to show further contraction, and on Friday a preliminary growth estimate for the third quarter of 2014. This is forecast to show a predicted slowdown in UK growth throughout the previous quarter, further underlining the recent travails of the UK economy.
"If you are looking to buy or sell sterling, we suggest contacting your trader now for live rates, news and currency-purchasing strategies."
