April 18, 2019, | AtoZ Markets - Investment banks who trade in currencies of emerging countries earn more than in the major markets of the traditional G10, as significant fluctuations in the likes of Turkish lira contrast with the relative calmness in the dollar, euro, and yen.
Forex earnings in emerging markets eclipse G10
Disappointing earnings in investment banks such as Goldman Sachs underlines the decline in trading revenues, as well as foreign exchange earnings. The slowdown in G10 currencies, like the US dollar, Australian, the euro, yen, Swiss franc, Canadian and New Zealand dollars, British Pound and the Swedish and Norwegian crowns, is obvious.
According to the Data compiled by analytics firm Coalition, 12 of the largest investment banks made $8.4 billion in 2018 emerging markets forex revenues, while G10 member states received a total of $7.9 billion (£6.1 billion).
Coalition data can only be determined at the start of 2010, due to the fact that earlier incomes in emerging markets were usually lower when compared with the profits made from trading in major currencies.
While commenting on the trend, Georgy Kuznetsov, who is the head of the analytical company said;
“Emerging markets had an exceptional year. Preliminary data for the first quarter of 2019 suggest emerging markets were again outperforming - G10 revenues are down nearly 10 percent; developing-market revenues are flat or marginally lower."
He further added;
“In 2019, I would expect relatively similar [revenues], but it will be difficult to exceed 2018 levels. Trading in G10 currencies was likely to rely on “one-off.”
Trading volumes and volatility impacts Forex earnings
Forex earnings are limited by declines in trading volumes and volatility. Banks bring in more money from volatile markets as customers trade more. But currency volatility plummeted to five-year lows, as large central banks, from the United States to New Zealand, became dovish.
For example, the exchange rate of the world’s most-traded currency pair, the EUR/USD has just seen its narrowest quarterly trading range since the single currency’s inception.
In contrast, Turkey’s Lira crisis in August 2018 sparked months of heightened volatility in the currency. Meanwhile, the Mexican peso and Brazilian real moved sharply amid political changes. Also, South Africa’s rand has rallied before next month’s election.
The growing role of expensive automated trading systems in G10 markets has suppressed already wafer-thin margins. Less liquid emerging-market currencies, on the other hand, often can be traded on the phone, making profits higher.
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