© Reuters. Saudi Riyal, Yuan, Turkish Lira, Pound, U.S. dollar, euro and Jordanian dinar banknotes are shown in this illustration
By Olga Cotaga
LONDON (Reuters) – Investors are gradually returning to the currency markets following a routine in March as the spread of the new coronavirus sent most entities tumbling toward the dollar, a group of market data providers noted.
Foreign exchange liquidity returns to pre-COVID-19 levels for some of the major currencies, with most recording an average of 70% to 80% of their previous daily volume, Mosaic Smart Data, CLS and MUFG found in a collaborative project.
However, trading volumes in new currencies “are not so dangerous” and remain at approx. 45% of the pre-crisis level, while trading outside market time generally remains very thin, the group noted.
The Euro / dollar – the most traded currency pair at $ 6.6 trillion a day – has seen the market’s liquidity return to almost 80% of its pre-crisis level.
Liquidity in the dollar / Japanese yen was largely shielded from disruption throughout the crisis. Both entities have remained appealing as safe haven currencies during the pandemic, with money managers switching assets from riskier markets to more stable ones.
Liquidity in euro / Swiss franc – another widely traded pair during market stress – was at 85% of pre-crisis levels, making it the most widely used currency pair within the G10 right now.
Within the pair / dollar pair, analysts noted “an immediate and sharp increase” in liquidity following the London fixtures, marking a change in trading behavior relative to market conditions prior to COVID-19, they said.
Yen, Australian dollars and Hong Kong dollars, Swiss francs and South African rand have seen the largest increases in liquidity. But traders are still avoiding the euro, sterling, Canadian dollar, New Zealand dollar and Mexican peso.
But “liquidity falls sharply outside of business hours, and it’s still almost as bad as it was at the peak of the health crisis,” the group said.
Fusion Media or anyone involved with Fusion Media assumes no responsibility for any loss or damage arising from the reliance on the information, including data, offers, charts and buying / selling of signals on this site. Be fully informed about the risks and costs associated with trading in the financial markets, it is one of the most risky types of investment.