London extends global FX lead despite Brexit

Despite dire predictions of a Brexit downturn, London has strengthened its position as a pre-eminent global hub for financial trades since the EU referendum, according to the Bank for International Settlements (BIS).

Board showing different currencies for an article about foreign exchange FX
Preliminary results from the latest BIS triennial survey show that, when it comes to the $6.6 trillion-a-day market for currencies, London has increased its lead over New York and other global centres.

How much has the UK's share of the foreign exchange (FX) market increased?

The UK’s share of the foreign exchange market increased to 43.1% in April this year, compared to 36.9% in 2016. Over the same period, the US share of trades shrank by three percentage points to 16.5%, while Hong Kong’s rose by just under a point to 7.6%.The BIS said the forex market had increased by 29% from the $5.1 trillion daily trading volumes recorded in 2016, mainly due to large growth in FX swaps activity; the rise of new proprietary and high-speed trading firms; and more demand for emerging market currencies."It has been more than three years since the referendum to leave the EU and it is still unclear when, if, and under what terms Britain will leave the bloc," commented New York-based business news organisation Quartz."Financial institutions have been relocating workers, capital and other resources to continental Europe and New York to prepare for the worst, with some £1 trillion of assets moving across the English Channel, according to consulting firm EY. Cities like Paris and Frankfurt have mounted sustained campaigns to lure bankers to their own financial hubs."But so far, Brexit has not been fatal for the UK. In fact, London has tightened its grip on global currency trading flows and Britain remains Europe’s leading hub for financial technology startups."

City of London Corporation comments on BIS FX statement

Catherine McGuinness, policy chair at the City of London Corporation, said the report represented “a clear vote of confidence in the City”. She added, “Despite challenging times, the fundamentals of the City remain strong.”

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Commerzbank comments on FX

Peter Dixon, senior economist at Commerzbank, said the UK’s “huge amount of expertise and knowledge” in FX trading outweighed the negative effects of Brexit. He said that although Brexit could hurt London’s standing in the equities and bonds markets, FX trading is largely carried out by computer algorithms and has lighter regulations.“Although a lot of the trading personnel in various other markets will have to move elsewhere to trade with the counterparts in the EU, that’s not true of FX to the same extent,” Mr Dixon said.

UK Financial Conduct Authority comments on FX

And in a speech this week, Andrew Bailey, chief executive of UK’s Financial Conduct Authority, said, “There’s no reason to believe that Brexit should restrict access to financial markets. The UK’s financial markets are — as the IMF has described them — a global public good, and we want to keep it that way.”

Forex trading in China and emerging markets

The BIS report also said forex trading in China had seen “a significant rise” in the past three years and had now overtaken Canada to become the eighth largest currency trading centre in the world, with a 1.6% market share.The Financial Times reported, "Emerging markets currencies continued to increase their share of daily volumes, accounting for a quarter of the overall $6.6tn figure. But growth in the renminbi slowed from previous years, as the Chinese currency failed to advance from its position as the world’s eighth most-traded."Asia-Pacific currencies, however, got a boost. Turnover in the Hong Kong dollar doubled compared with 2016, nudging it to ninth place in the order of most traded currencies, from 13th previously."The Indian rupee, the Korean won and the Indonesian rupiah also advanced in the rankings, while volumes in the Turkish lira and Mexican peso slipped.

For more news and views, visit our dedicated Brexit section.

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