Nerves grow over impact of fixing row, FX regulation

Fri Mar 28, 2014 2:05pm EDT
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By Patrick Graham

BERLIN (Reuters) - A drop-off in major currency market volatility may be due as much to banking regulations and a row over alleged manipulation as to ultra-low interest rates in the developed world, industry figures said on Friday.

Meeting at one of the year's big foreign exchange gatherings in Berlin, officials from banks, trading platforms and brokerages said the industry is becoming increasingly hamstrung as banks struggle with new rules and a series of investigations into alleged wrongdoing around daily benchmark "fixings".

Behind the numbers showing currency markets are worth more than $5 trillion daily, volatility, the lifeblood on which investors depend to rack up profits, is close to all-time lows. Three months into 2014, players are increasingly concerned about when it will pick up for the major currencies.

The running assumption of most has been that the fall-off in the vigor of price moves and speculation is due mainly to the almost identical and very low returns offered by official rates on dollars, euros, sterling, francs or yen.

But noticeably there was little lasting impact on volatility from significant statements by the heads of the Bundesbank and the U.S. Federal Reserve over the past two weeks. If the malaise turns out to be due more to the fallout of banks' efforts to shore up capital and control dealing rooms more tightly, it may leave the market in the doldrums for far longer.

"As far as I'm concerned it's obvious that the banks are simply not able to take as much risk as they were and that is having an impact on volatility," said a senior official with one leading trading platform, asking not to be named.

"In the past, when something happened that looked worth trading on, people would just jump on it and the herd would follow. Now people see something happening and they simply don't have the ability to go out there and do something."

LIMBO   Continued...

A money changer inspects U.S. dollar bills at a currency exchange in Manila January 15, 2014. REUTERS/Romeo Ranoco