CLS, a global provider of foreign exchange (FX) settlement services, reported an increase in average daily traded volumes for July 2024. The daily volume reached USD 2.15 trillion, reflecting an 8.2% growth compared to July 2023.
Lisa Danino-Lewis, Chief Growth Officer at CLS, highlighted the rise in FX swap and spot volumes as key drivers. “In July 2024, we saw average daily traded volumes of USD 2.15 trillion, an increase of 8.2% compared to July 2023. Over the same period, FX forward volumes decreased by 14.1%, while FX swap volumes and FX spot volumes were up by 14% and 2.7%, respectively.”
The figures represent a continued upward trend from the previous month, June 2024, where the total average daily traded volume was USD 2.259 trillion, indicating a slight month-on-month dip.
This increase in FX trading activity underscores the ongoing dynamism in global currency markets, with market participants increasingly turning to CLS for reliable settlement services amidst fluctuating market conditions.
The recent rise in FX swap and spot volumes, coupled with a decline in FX forward volumes, can be attributed to several market dynamics and broader economic factors.
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FX Swap Volumes
Profitability and Market Making: The FX swap market has seen significant growth due to its profitability, particularly through the dollar basis premium. Banks engage in FX swaps not only for hedging but also for arbitrage and market making, allowing them to manage currency exposure more effectively. Additionally, technology advancements have made it easier for banks to automate and manage these short-term instruments, further driving volume growth.
Regulatory Considerations: The expansion in FX swaps is also linked to regulatory factors. Banks use FX swaps to adjust their balance sheets without affecting Basel III ratios, which is essential for maintaining regulatory compliance while still engaging in profitable dollar lending.
FX Spot
Market Volatility and Hedging: Spot market volumes have risen partly due to increased market volatility and the need for immediate hedging in response to geopolitical and economic uncertainties. The spot market allows for rapid adjustments to currency positions, which is particularly important in a year marked by varied global economic performance, such as the differing trajectories of major economies like the U.S. and China.
FX Forward Volumes:
Economic and Interest Rate Uncertainty: The decrease in FX forward volumes can be attributed to the uncertain global economic outlook, particularly with respect to interest rates. With central banks around the world, including the U.S. Federal Reserve, adopting unpredictable monetary policies, market participants have become less inclined to commit to longer-term forward contracts. This uncertainty has led to a preference for more flexible instruments like swaps and spot transactions.
These trends reflect the complex interplay between profitability, regulatory pressures, technological advancements, and macroeconomic uncertainty, all of which are shaping the current FX market landscape.
