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BoE survey shows FX volumes dipping after SNB shock

[LONDON] Average daily volumes of trading in the currency markets fell back from record highs in the six months to April, digesting a shock decision by the Swiss National Bank to jettison a cap on the franc, a regular survey by the Bank of England showed.

The drop following a handful of record days in December and January when trading was around twice the US$5 trillion daily average bodes ill for banks who rely on higher trading volumes in fixed income, currencies and commodities to bolster profits.

January was a turbulent month for the currency market, with the surprise move by the SNB to scrap its more-than three-year-old franc cap against the euro driving the biggest day's trading ever by some measures.

But volumes have since tailed off, with turnover in the global currency market and the Swiss franc dropping in subsequent months.

Daily trading in London, the world's main foreign exchange centre, was 8 per cent lower at US$2.48 trillion a day, the Bank of England's survey showed, including a 13 per cent drop in daily spot volumes to US$973 billion a day in the six months to April.

The BoE said despite a broad decline in overall turnover, activity in the Chinese yuan picked up. That comes as Beijing ramps up its efforts to internationalise the currency, also known as the renminbi. "USD/CNY activity increased by 25 per cent in April 2015 to US$43 billion per day, a new record high, and is now the ninth largest FX pair," the BoE added.

Meanwhile, turnover in the dollar/yen pair fell 25 per cent, returning to levels last seen in October 2013. Trading interest in the yen had picked up in the past two years as the Bank of Japan unleashed a huge monetary stimulus aimed at getting inflation back to 2 per cent.

Turnover in the euro/dollar pair also rose as the European Central Bank embarked on its one trillion euro asset buying programme. The divergence between monetary policy in the United States and other major economies, along with political risk, had helped to solidify a recovery in trading over the 18 months or so, but the latest data shows that trend is flagging.

While markets have been on edge over Greece's fate since April, traders say bets by investors have been limited and that trading has eased off highs reached as the dollar surged over the past year.