Tightening profit margins + macroeconomic challenges may lead to foreign exchange and interest rate trading income reaching its lowest level since the pandemic
Affected by tightening profit margins and macroeconomic challenges, global banks' foreign exchange and interest rate trading revenues are expected to hit their lowest level since the pandemic. Data shows that over 250 institutions are expected to generate $32 billion in revenue from interest rate trading, a year-on-year decline of 17%; and $16.7 billion from currency trading, a year-on-year decline of 9%. Market confidence in central bank interest rate cuts has decreased, and macro trading revenues have been impacted by intensified competition and advancements in electronic trading. It is expected that interest rate trading revenues will drop to $30.9 billion in 2025, while foreign exchange traders' revenues will reach $17.2 billion and $17.6 billion in 2025 and 2026, respectively
According to the Zhitong Finance APP, influenced by tightening profit margins and challenges from the macroeconomic backdrop, global banks' foreign exchange and interest rate trading revenues are expected to hit their lowest levels since the pandemic. Data collected by Coalition Greenwich shows that over 250 institutions, including Goldman Sachs, JP Morgan, Citigroup, and Morgan Stanley, are expected to generate $32 billion in revenue from G10 interest rate trading and $16.7 billion from currency trading, representing year-on-year declines of 17% and 9%, respectively.
Due to unexpected economic data impacting bets on interest rate cuts by major global central banks, investors' confidence in making significant macro predictions has decreased this year. The seemingly evenly matched U.S. presidential election, along with the unwinding of once-popular yen funding arbitrage trades, has also unsettled the market.
Angad Chhatwal, global macro markets head at Coalition Greenwich, stated, "2024 will be a year of sitting on the sidelines." "Hedge funds occasionally enter the market around data points and events, but they are not as active compared to previous years."
Chhatwal noted that macro trading revenues have also been hit by tightening profit margins due to increased industry competition and advancements in electronic trading.
Coalition Greenwich forecasts that with the expansion of non-bank market makers and the electronicization of bonds catching up with other markets, interest rate trading revenues will further decline to around $30.9 billion in 2025 and to $28.1 billion in 2026.
Meanwhile, foreign exchange traders' revenues are expected to reach $17.2 billion in 2025 and $17.6 billion in 2026. The Donald Trump administration is expected to exacerbate volatility in the $7.5 trillion foreign exchange market.
Chhatwal said, "We are seeing more positions in foreign exchange during interest rate change cycles." "Corporate activity has also become stronger, having a much more positive impact on the foreign exchange market compared to the interest rate market."