London has extended its domination of the market for foreign exchange trading, according to figures released by the UK, the US, Singapore and Canada.
The value of business passed through London has surged by 39 per cent over the past year to $1.03 trillion (£560bn) a day, according to a survey of 30 institutions by the Bank of England. The rise means City banks conduct almost double the $577bn a day that passes through Wall Street, according to New York Federal Reserve figures.
Michael Snyder, chairman of the policy and resources committee at the City of London council, said: "The overriding factor is clearly regulation and tax. But in terms of other factors, people from around the world feel at home in London."
The increase further establishes London as the world's largest foreign exchange dealing centre. The City enjoyed growth of 19 per cent since the last semi-annual survey was done in October. Comparable figures showed that New York posted a 21 per cent increase, Singapore was up 17 per cent and Canada 5.7 per cent.
Monica Fan, global head of foreign exchange strategy at RBC Capital Markets in London, said: "London has always been dominant because it straddles the time zones for the Asian and US markets. It is also in the correct time zone to take advantage of the fact that central and eastern European markets are moving towards adopting the euro."
Ms Fan said the fall in global interest rates to record low levels had made foreign exchange bets a new alternative investment.
She added: "Investment managers have struggled to get positive returns, or certainly alpha returns, from other asset classes such as equities or fixed-income [bonds]."
The past year has seen major growth in the volume of risky carry trades - where traders borrow in a low-interest rate currency to invest in a country with high borrowing costs such as Iceland and New Zealand.
However, the rise in interest rates in the US and eurozone has left many investors nursing heavy losses and forced them to unwind their positions.
Ms Fan said London traders had also benefited from the surge in takeovers of UK companies by foreign companies.
The report by the Bank's foreign exchange joint standing committee showed that the growth was driven by straightforward "spot" transactions. This tranche of business surged by 33 per cent in the six months to April alone. Business with organisations other than banks, such as hedge funds, based outside the UK jumped by almost 39 per cent.
Ms Fan said: "There has been growing investment by hedge funds and that is dominated in London."
Speculation on the path of interest rates in the US and the eurozone has triggered an outbreak of volatility in the euro-dollar exchange rate. The Bank reported a 67 per cent increase in foreign exchange option trading with overseas hedge funds and other institutions between October and April.Reuse content