Faith in euro grows daily
Sunday 10 January 1999
The more willing firms are to trade in the euro, the more likely the currency is to capture a bigger slice of the $1,500bn (pounds 950bn)-a-day foreign exchange market than the mark, its predecessor as Europe's benchmark currency.
Last year the German currency accounted for 30 per cent of the average daily turnover in the world's foreign exchange market.
"On Monday, we hardly saw anyone come in,'' said Alan Moore, the global co-head of foreign exchange at State Street Bank. By the middle of the week: "We really started to see large institutional flows and good two- way trading. The market was more comfortable that systems were working.
"On Tuesday, there were small trades [of between 200,000 euros and 2m euros] going through,'' said Charles Spence, head of foreign exchange sales at ING Baring Capital Markets in New York. "But by Wednesday, people were feeling comfortable enough to trade 20m to 30m a pop.''
NatWest Global Financial Markets in New York saw euro trading volume increase by 30 per cent between Monday and Friday, foreign exchange officials at the bank said.
Still, euro trading wasn't entirely glitch-free. Some European banks encountered problems in the settlement of currency transactions after they failed to follow the directions for cross-border payments. Some transfers from German banks to their Luxembourg counterparts were mistakenly registered as credits at the Luxembourg central bank because of clerical errors.
"The settlement issue is a short-term problem and will be solved within days,'' said Joe Norena, the head of European foreign exchange trading at Deutsche Bank.
Many traders also shied away from pitting the euro directly against the yen, concerned that mistakenly quoting the unfamiliar currency pair could force mistakes.
Still, foreign exchange dealers rated the euro's first week a resounding success, and predicted that trading in it will become increasingly deep, surpassing that of the mark.
"There's a perception that the euro will have more liquidity than the mark had,'' said Commerzbank's currency strategist, Stewart Newnham. Copyright: IOS & Bloomberg
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