FX Volatility Boosts Trading, Amid Signs More to Come

(Bloomberg) -- The past week’s financial-market turbulence is keeping foreign-exchange traders busy, boosting volumes along with volatility.

Price swings in the $5.1-trillion a day currency market have jumped at the start of 2018 to the highest since November 2016 on a monthly basis, according to a JPMorgan Chase & Co. gauge. The turmoil coincides with surging trading activity, say JPMorgan and CLS Group Holdings AG, which settles global foreign-exchange transactions.

As heads of currency trading from the world’s biggest asset managers and banks gather at the TradeTech FX conference in Miami this week, they’re fixated on whether the turmoil will persist. If it does, it could be a boon for speculators, while complicating the tasks of hedgers who prefer more placid waters.

FX Volatility Boosts Trading, Amid Signs More to Come

“Volatility is natural to markets -- low volatility is not natural,” said Isaac Lieberman, chief executive officer of Aston Capital Management LLC in New York.

Managers of $1.7 Trillion Say Currency Volatility Here to Stay

Market gyrations have returned to FX after a subdued 2017, which was the calmest year since 2012, according to the JPMorgan gauge. As other central banks look to follow the Federal Reserve in withdrawing monetary accommodation against a backdrop of strengthening global growth, there are plenty of catalysts that could whipsaw markets.

“Market activity is really taking off,” said David Puth, chief executive officer of CLS Group.

Traded volumes submitted to CLS averaged almost $2.1 trillion of currency trades a day from Monday to Thursday last week, up 14 percent from January’s average, the company said in a statement.

As markets became more volatile over the last two months, JPMorgan’s clients boosted their use of the bank’s currency algorithms, according to Richard James, co-head of macro markets execution in London. The number of users trading on the bank’s electronic platform also grew, with every day last week exceeding the highest level seen in 2017.

Here are some other views on volatility expressed at the event:

  • “FX market participants worry that any further round of equity volatility will spill much more heavily into FX than last week’s episode did,” said Steven Englander, head of research and strategy at Rafiki Capital. “The strong consensus is that the VIX will fall back sharply but stabilize closer close to historical norms around 15 or just under. VIX futures build in a relatively quick downward move.”
  • “What we’re seeing right now is the start of the volatility -- I think that continues,” said Lee Ferridge, head of macro strategy for North America at State Street Global Markets. If the turbulence persists, it could prompt the Fed to back off its tightening cycle, he said.

©2018 Bloomberg L.P.

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