Currency trading in London surges

Foreign exchange trading in London, the world’s currency hub, surged as worries over the eurozone crisis grew last autumn, figures released on Monday showed.

Average daily turnover for trade in global currencies in the UK was just less than $2tn in October last year, according to a semi-annual survey by the Foreign Exchange Joint Standing Committee that gathers information from 30 separate financial institutions.

That represented a 17 per cent rise in foreign exchange trading on the previous year, but a slight dip of 3 per cent from April 2011, according to the six-monthly survey.

The decrease in turnover was driven by a 9 per cent fall in foreign exchange swap activity, the report said, while spot turnover rose 2 per cent to a record high.

Trading the euro against the dollar was by far the most popular currency pair on the spot market, the survey found, followed by the pound against the dollar – popularly known as “cable” by foreign exchange traders – with the Australian dollar against the US currency in third place.

Traders said the fall in October could be the effect of a particularly busy April last year following the Japanese tsunami and the co-ordinated intervention by the G7 to weaken the yen in March.

Currency trading over the summer was unusually high as tensions mounted over the eurozone crisis, with July and August, traditionally quieter months for the foreign exchange markets, seeing strong trading volumes.

Investment banks have also reported more interest in trading foreign exchange as a proxy for other types of investment, with equity investors trading currency pairs to hedge risk more cheaply. The search for havens from the eurozone crisis last year also resulted in unusual activity in the foreign exchange market, with both Japan and Switzerland intervening to weaken their currencies, creating spikes in volatility.

“A lot of the tensions playing out between economies are playing out in the foreign exchange markets,” said Kevin Rodgers, global head of foreign exchange spot trading at Deutsche Bank.

London is the centre of global foreign exchange trading, according to the Bank of International Settlements, which releases a triennial survey of the market. The last survey, in April 2010, found that $4tn a day was traded across the global foreign exchange market.