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Global FX markets when hedging takes centre stage

Author

Listed:
  • Wenqian Huang
  • Ingomar Krohn
  • Vladyslav Sushko

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.

Suggested Citation

  • Wenqian Huang & Ingomar Krohn & Vladyslav Sushko, 2025. "Global FX markets when hedging takes centre stage," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:2512b
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    References listed on IDEAS

    as
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    9. Hyun Song Shin & Philip Wooldridge & Dora Xia, 2025. "US dollar's slide in April 2025: the role of FX hedging," BIS Bulletins 105, Bank for International Settlements.
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    Cited by:

    1. Torsten Ehlers & Karamfil Todorov, 2025. "Goodbye Libor, hello basis traders: unpacking the surge in global interest rate derivatives turnover," BIS Quarterly Review, Bank for International Settlements, December.

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    More about this item

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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