Global FX markets when hedging takes centre stage

Wenqian Huang, Ingomar Krohn and Vladyslav Sushko

BIS Quarterly Review, 2025

Abstract: Turnover in global foreign exchange (FX) markets averaged $9.5 trillion per day in April 2025, a 27% increase from April 2022. Developments specific to April, namely heightened volatility and the dollar's depreciation following US tariff announcements, were linked to a surge in spot and forward trading as market participants managed currency risk. The preconditions set by global monetary policy tightening since 2022, which had raised hedging costs and left many investors underhedged, amplified these developments. In addition, interbank trading in FX swaps stagnated because of reduced liquidity management needs and fewer cross-currency arbitrage opportunities. Dealers largely relied on internal capital markets to manage risk and demonstrated greater capacity to internalise client trades than in previous years, supporting orderly market functioning in April.

JEL-codes: C42 C82 F31 G12 G15 (search for similar items in EconPapers)
Date: 2025
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