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BIS Report Sees FX Shift to Relationship Trading
The latest Bank for International Settlements Quarterly Report carries a paper, Downsized FX Markets: Causes and Implications, which suggests that amongst the many structural shifts taking place in FX markets, a move towards relationship trading is underway. The authors suggest that this shift, along with the changes in the composition of market participants and their trading patterns may have “significant implications for market functioning and FX market liquidity resilience going forward”. The paper notes that trading with non-financial counterparties has fallen 20%, a reflection of reduced global trade flows. It argues, however, that conventional macroeconomic drivers alone cannot explain the evolution of FX volumes or their composition across counterparties or instruments.

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