The United Kingdom has long been a leading market in the currency exchange game and London has established itself as one of the world’s most prominent financial hubs. Two years after the Brexit vote and just a couple of months before Britain faces the unknown landscape of the post-EU era, London’s leadership seems more secure than initially expected. A Reuters analysis has revealed that in the months leading up to the UK-EU divorce, London has in fact consolidated its strong position in the global forex market.
London Still Leads Globally in Foreign Currency Exchange Market
According to Reuters, the forex market is one of the leading industries in London’s robust financial services sector – and one that is used widely across the globe. A diverse range of stakeholders, from banks and hedge funds to investment management companies and retail traders all participate in the currency exchange market. Its volume rises to over $5.3 trillion daily on a global scale, which is even more impressive when you consider the volumes of leading forums like the New York Stock Exchange – trading roughly $22.4 billion per day. It is considered the largest financial market worldwide, and while the US dollar is the most traded currency, the London market dominates in this global network of brokers.
And this dominance seems to hold even in the face of Brexit uncertainty. Reuters has combined data from surveys compiled by central banks across the top 5 trading centers to reveal that forex trading volumes across the UK demonstrated a 23% rise in April 2018 as compared to two years earlier before the referendum. This means that the figure has catapulted to a record high £2.1 trillion ($2.7 trillion) average volume per day. By contrast, the US forex market, Britain’s biggest rival, only managed to reach $994 billion during that same time, a rise of roughly 11%. This growth that was mostly thanks to the New York financial industry and means that London has stayed ahead by over 100%.
As Reuters reports, the next players in the top 5 markets lag even further behind: Singapore saw a decline of 5% and had a trading volume of $523 billion. In fourth place, Hong Kong managed to grow by 10% to $482 billion, while Japan ranks fifth at $415 billion – a 2% increase during that same two-year period. This effectively translates to 40% of all forex trade transactions being processed in British markets, with almost all of that volume handled in London – which sees its daily forex trading volume almost rise to the level of Britain’s total yearly financial output. Ahead of Day Zero on the Brexit deal, namely March 29th, 2019, the forex industry has figured prominently in negotiations between the UK and the EU, with each side seeking to secure its own financial interests.
How Will Brexit Affect London’s Financial Impact?
Even though London seems so far unfazed by the impending Brexit deal, this is likely to change once the uncertainty over the separation is lifted and the dust settles. For now, nobody really knows what the landscape will look like after March 2019, but if the UK leaves the EU as planned, then many of the financial institutions and firms currently based in the country will most likely seek to set up shop elsewhere in the Union. Around 50 banks are already discussing leaving London after the separation deadline, and over 30% of business taking place in the City is related to the EU. This means that any restrictions imposed on Britain’s access to the EU single market might prove devastating for its financial industry.
Yet some of Brexit’s implications might also prove beneficial for some sectors of the British economy. The Midlands manufacturing industry has seen growth in the face of uncertainty, with exports rising by 34% – an achievement partly attributed to a weaker pound. And it seems that the global political turmoil, including Brexit and looming trade wars between the US, the EU and China, have also helped London’s overall growth, according to Reuters. Its location is also a huge advantage, as London’s time zone is ideally placed between the big US and Asian markets.
This has led to big firms flocking to London, which might use its strategic advantage and its advanced experience and technical know-how to retain its key players. Reuters reports that the UK capital enjoys sophisticated forex trading hardware as well as incredibly fast network cables that connect it to the New York market under the Atlantic – an ace up Britain’s sleeve that is hard to beat. Even though the Asian big markets have emerged as strong contenders against London’s dominance, these factors reveal that it might be difficult for them to challenge Britain’s lead even in the post-Brexit era.
Given the complexity of the financial landscape and the unclear picture of post-EU Britain, it is hard to tell how the forex market will respond. But for now, there are several indications that London will continue to go strong and retain its global position.
