Global activity in the foreign-exchange market is on the decline as traders step away from forward and swap transactions.
Average daily foreign-exchange turnover in the U.K. dropped to $2.6 trillion in October, a 4% fall from the record high of $2.7 trillion in April, according to data released Tuesday by the Bank of England. In North America, daily volume dropped 0.1% to $995 billion in October from a year earlier, a report from the Federal Reserve Bank of New York showed. Tokyo and Australia also reported declining volumes.
The slump was led by a slide in forwards and swaps, which fell 5.6% and 14.3%, respectively, from a year earlier in U.S. markets. The dollar's surprising surge last year might have contributed to those instruments falling out of favor, said Olivier Doleires, head of currencies at UBP's investment management division. For money managers based outside the U.S., a rising greenback would boost returns on unhedged dollar-denominated holdings.
"The direction south of other asset classes, mainly equity, fixed income and credit, might have contributed to the decline in FX swap trading," said Mr. Doleires, who is based in Geneva. "Lots of flows went to dollar assets on an unhedged basis."
An uptick in other instruments wasn't enough to make up the shortfall. Spot market transactions increased 10.6% from the previous year, according to the New York Fed, while usage of options grew by 32.9%.
The most recent data from the Bank for International Settlements, from a triennial survey released in 2016, pegged daily global currency-market turnover at $5.1 trillion. That level marked a drop from $5.4 trillion three years earlier.