Shrinking global trade in currencies is stinging banks, partly due to a lull in the euro zone crisis, and dealers face job cuts as volumes are likely to drop further next year. Falling business since the middle of 2012, accompanied by lower market volatility, have left banks struggling to make money out of currency dealing.
"The drop in volumes in the market has impacted everyone, every bank on the street," said George Athanasopoulos, who co-heads global foreign exchange and precious metals at UBS. A global economic slowdown has helped to dampen volumes for some time, along with ultra-low interest rates in many countries which have dimmed the appeal of buying one major currency against another.
European Central Bank President Mario Draghi seems, probably unintentionally, to have accelerated the trend when he promised in late July to do "whatever it takes to preserve the euro". Draghi's comments, followed up by a conditional ECB plan to buy the bonds of troubled euro zone governments, restored relative calm to the markets and limited the euro's fall. This in turn helped to reduce the currency swings which normally allow foreign exchange (FX) dealers to make profits. Between August and November, volume on the CLS system, which settles the vast majority of currency transactions, fell by 11 percent year-on-year. The two major electronic trading systems - EBS, owned by ICAP Plc, and Thomson Reuters - reported annual falls in trades of one currency for another of around 40 and 25 percent respectively. "The whole industry's volumes are lower. This year has been relatively devoid of directional trends, which has made it a more challenging year for many participants," said Adrian McGowan, head of FX trading for Europe at Barclays. A similar gloomy picture emerged from interviews with global heads of currency trading at six major banks, including the top five in Euromoney's 2012 survey of the biggest banks for FX deals.
Currency trading volume rose steadily until 2011 when CLS data showed the average daily value topped $5 trillion, before turning lower this year. There is little respite in store, with large banks preparing for "a challenging year from a volume standpoint", said one trading head at a European bank. SEB global head of FX trading, Robert Celsing, said volumes could drop by 10-20 percent in 2013. In recent months, implied volatility - a measure of expected future price movements - in many major currency pairs has