Daily spot foreign exchange volumes hit a three-year high on trading platform EBS on Oct. 31, the day the Bank of Japan stunned markets with another dose of monetary easing, boding well for currency markets and trading banks.
The surge in EBS volumes means that a recovery in trading activity extends well into its second month and is likely to shore up banks’ profits from the buying and selling of foreign exchange in the fourth quarter.
“Following the Bank of Japan’s announcement to expand its quantitative easing program, total daily volume on EBS Market was $228 billion and overall EBS total daily volume was $250 billion,” EBS, which is owned by ICAP (IAP.L), said in a statement.
To put it in perspective, that was almost double the average daily volumes seen in October, which was at $129.9 billion, up 69 percent from a year ago. Average daily volumes were at $117.9 billion in September.
Last Friday the BoJ said it would triple its purchases of exchange-traded funds (ETFs) and real-estate investment trusts (REITs) and buy longer-dated debt, sending Tokyo shares soaring and prompting a sharp sell-off in the yen JPY=.
EBS is one of the main venues for banks and other major players trading dollars, euros, yen and Swiss franc. In September volumes in the foreign exchange market rose to a record high of nearly $6 trillion a day, driven by a spike in volumes on EBS and its competitor Thomson Reuters. (TRI.TO)
Volumes in the currency market started reviving in September amid higher market volatility fueled by political events and the dollar’s global rally.
Volatility, which tends to drive volumes higher by increasing the potential returns for traders, had been at or around record lows for the first six months of the year, stemming activity among major dealers.
But events ranging from Scotland’s September referendum on independence to surprise dovish policy messages from the Bank of England and European Central Bank spurred activity and volatility over the past two months.
In contrast to the ECB, the Bank of Japan and the Bank of England, the Federal Reserve is widely expected to start tightening monetary policy next year. As such, volatility has surged on the back of a growing divergence between monetary policy and interest rates in the world’s biggest economies.