Forex Trading Volumes Rise as Central Banks Prepare to Print Money

on Sep 14, 2012

On September 9, The Sunday Times reported that investors were looking to make profits by foreign currency trading amid speculation that central banks were likely to implement economy stimulus measures, with quantitative easing figuring strongly.

Recently, currency trading specialists have observed a rise in forex trading volumes, with The Sunday Times quoting Joshua Raymond at the forex trading platform City Index, who noted that when there was speculation about central banks intervening, there was also a marked rise in forex trading volumes. The Forex Club, another foreign exchange trading specialist, also reported that transaction volumes had almost doubled since the end of August, with investors taking positions to profit from upcoming currency fluctuations.

Among the central banks expected to take stimulus action is the Bank of England, which, as noted in The Sunday Times article, last week stopped short of another QE round. The European Central Bank (ECB) on the other hand announced a bond-buying scheme with the purpose of easing the borrowing costs for debt-ridden Eurozone countries. In addition, the US Federal Reserve was also expected to introduce stimulus measures, given the disappointing data about the US economy, such as the unemployment rate.

!m[](/uploads/story/370/thumbs/pic1_inline.png)The most popular position for sterling customers has been betting that the pound would go up against the euro, or going short on the euro. The Sunday Times reports that since June, the euro has weakened from €1.23 to €1.26 against the pound. The investment bank UBS (NYSE:UBS) for instance advised traders to go long on the pound against the euro, expecting that any potential money-printing measures implemented by the Bank of England would be offset by action by the ECB. The Sunday Times quotes Aditya Bagaria, a Credit Suisse (NYSE:CS) currency analyst, who pointed out that measures such as ratings downgrade or further QE would have a rather limited impact on the pound. Deutsche Bank, however, believes that the euro would strengthen since the pledge of EU policy makers to do “whatever it takes” to save the single currency would make the euro more attractive for investors.

Another popular strategy is going long on the dollar against the pound. Although the pound has strengthened against the greenback since the beginning of June, from $1.54 to $1.59, the dollar is expected to go up even in the case of the Fed implementing stimulus measures such as QE3. According to UBS currency specialist Syed Mansoor Mohi-uddin, resumed asset purchases by the Fed are not likely to have a significant impact on the dollar. “First, other leading central banks are also expanding their balance sheets. Second, the currency markets have priced in some degree of Fed easing already, with commodity currencies and the yen already trading close to historic highs against the US dollar,” he noted as quoted by The Sunday Times.
Sterling forex traders can potentially profit from going short on the Australian dollar, which is expected to fall against the pound on account of declining demand for commodities. As reported by The Sunday Times, Credit Suisse expects that the Aussie will weaken from A$1.53 to A$1.58 against the pound over the next 12 months.