Quarterly Review Q1 2023 – Part I – Market Overview, Industry Events and Trends

Quarterly Review- Market Overview, Industry Events and Trends

I. Introduction

This report provides an overview of the current state of the Forex market and industry. In the first part, we will focus on forex market overview and industry events and trends, and in the second one, which will be published next week, we will discuss regulatory changes, AI influence and projections for the upcoming months. The purpose of it is to help market participants, including traders, investors, and institutions, stay informed and adapt to changing market conditions.

In the first quarter of 2023, there was a notable increase in volatility during the banking crisis in March, although the preceding two months were relatively stable. The markets were heavily influenced by the actions of the U.S. Federal Reserve (Fed) and other major central banks, the ongoing conflict in Ukraine, a rising-rate environment and several bank failures. The market conditions were quite volatile and challenging to navigate, with every rate hike and news cycle bringing fresh hurdles. As societies continue to reopen and economies begin to return to an undefined state of normalcy, investors and traders are reassessing their positions, risks and fundamental beliefs in response to the ever-changing market environment.

II. Foreign Exchange (FX) Market Overview

US Banking Crisis

The bank run on Signature Bank and Silicon Valley Bank raised concerns about financial stability across the broader banking spectrum. Actions by policymakers have so far stabilized the financial system, but the question remains whether they will be sufficient to ensure the idiosyncratic risks of a few banks don’t turn systemic.

Market volatility returned abruptly over the last couple of months after a period of relative tranquility. European banks are better capitalized and hold larger amounts of liquidity. Euro-area banks are likely to be less impacted by mark-to-market losses on their bond portfolios. Nonetheless, the risks should not be underestimated, and a significant credit tightening is on its way, particularly in the US. Pressure on loan growth will intensify, especially in small US banks, and banks will likely be facing higher funding costs as they try to stem the sharp pick-up in investment in money market funds.

Fixed Income

The first quarter of 2023 noted positive growth sentiment due to falling energy costs and the reopening of China’s economy, however, inflation measures started to rise again. The collapse of Silicon Valley Bank in mid-March caused a sharp rally in government bond markets, with some markets discounting rate cuts instead of hikes. Central banks continued with interest rate hikes, with the Federal Reserve announcing two rate hikes of 25bps each, and the Bank of England approving two rate hikes of 50bps and 25bps respectively. The US dollar was weaker against most G-10 peers due to changes in rate hike expectations.

US Dollar

The US dollar remained stable against most G10 currencies at the end of Q1 2023 as the Federal Reserve (Fed) raised interest rates by 25bps to 4.75%-5.00% and indicated that only one more rate increase is likely this year. This pullback from aggressive rate increases seen in 2022 may be viewed as a dovish turn in policy, keeping the base rate in restrictive territory to combat inflation and supportive of the US dollar. Inflation remains the key metric to watch for predicting Fed policy. A deceleration in inflation will give energy to those positioned for the Fed to conclude tightening of monetary policy. The path of the US dollar will be data-dependent, focusing on levels of inflation, employment data, and the state of the US consumer.

Euronext Volumes

Euronext FX’s spot forex trading volume declined by 13% to $1.4 trillion during Q1 2023, compared to the same period in 2022. The daily average volume also dropped by 14.4% to $21 billion. However, in March 2023, spot forex trading activities gained 26.4%, reaching $521 billion compared to $412.2 billion in the prior month, and the average daily volume rose by 10% to $22.7 billion. Euronext also recorded the third-highest equity value traded in history on March 17th, with a total value of trading during the day at €27.6 billion.

Metatrader Mobile App

The MetaTrader app returned in the middle of February on the Apple App Store, but not in its original form. The company has launched a new messaging app called TeamWox Communicator, which allows users to communicate with colleagues and clients, share files and even hold video conferences. MetaQuotes CEO Renat Fatkhullin said the new app would serve as a testing ground for the company’s other products, including the MetaTrader trading platform. The company’s original MetaTrader app was suspended by Apple in February 2022 due to violations of the App Store’s guidelines.

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