LMAX Exchange
The UK’s referendum decision to leave the European Union has led to wild swings in the valuation of sterling, and caused significantly increased volatility in many other currencies.
But while analysts, strategists and economists will spend the next few months trying to determine and predict what will happen next, a more immediate and perhaps more intriguing sub-plot is how the FX industry itself managed to handle the increased volumes and volatility that occurred subsequent to the Brexit decision.
Market participants generally reported that liquidity was available throughout the day after the vote, but where were the best places to find this liquidity and who was supplying it?
Moreover, the Brexit vote is likely to have sparked a period of continued FX market volatility, with potential changes to monetary policy in the UK now on the horizon, in addition to a possible US Fed rates hike and a US general election occurring later this year.
After a significant period of time where singular risk events have generally been followed by long bouts of low volatility, how should market participants be preparing themselves for these new market conditions?
Analysis of the FX markets’ reaction to the Brexit vote has generally centred on the industry’s ability to handle the increased volumes and volatility with minimal fuss. But given that a Brexit was always a known macro risk, is this truly an indicator of how the market can handle stressed market conditions? Can the response to the UK referendum teach us anything about how the FX market would react to another SNB event?
LMAX Exchange CEO, David Mercer, shares his insights together with a list of FX industry participants.
