May was achallenging month for institutional foreign exchange (FX) markets. After aperiod of relative stability, trading volumes across major platforms, includingCboe, FXSpotStream, TFX, Euronext, and Fastmatch’s 360T, experienced a steepdecline compared to the April highs.Thisdownturn surprised many market participants, especially given the unchangednumber of trading days compared to previous months. What caused such a dramaticdrop in institutional FX volumes? Let's break down the numbers and examine thefactors behind this shift.Why Did Institutional FXVolumes Fall?Severalfactors contributed to the sharp decline in FX trading activity in May 2025.Market volatility remained subdued, with fewer macroeconomic catalysts to spurtrading. Uncertaintyover central bank policies, particularly from the Federal Reserve and Bank ofJapan, led to a “wait-and-see” approach among institutional players.Additionally, the absence of major geopolitical events or economic datareleases kept traders on the sidelines, resulting in lower turnover across theboard.In April,markets were shaken by Donald Trump’s unexpected trade war rhetoric and threatsto impose tariffs on a wide range of countries. The U.S. dollar fell nearly4.4% against a trade-weighted basket of currencies, its steepest monthlydecline in three years, fueling volatility and a surge in trading activity.Bycontrast, in May, the dollar’s drop was limited to just 0.2%, which led to anotable pullback in institutional FX volumes, as illustrated by the examplesbelow.US Market Activity HitMulti-Month LowsTheUS-based Cboe exchange saw a notable decrease in both total FX volumes andaverage daily value (ADV) during May. Despite having the same number of tradingdays as April, Cboe’s total turnover settled at $1.06 trillion, marking thelowest level since February. Dailytrading volumes also slipped, reaching just under $48 billion, a three-monthlow. While these figures may seem discouraging, it’s important to note thatyear-on-year comparisons remain positive. In May2024, Cboe’s total FX volume was $971 billion, with an ADV of $42 billion,indicating that the market has grown over the past year, even if the recentmonthly trend has been negative.Steepest Decline in JapanThe TokyoFinancial Exchange (TFX) experienced an even more dramatic contraction on itsClick 365 FX platform. In May, monthly trading volumes plunged by nearly 37% to1.43 million contracts, with the average daily volume falling to 65,000contracts. Compared to the same period last year, this represents a staggering41% decrease. The USD/JPYcurrency pair, which remains the core driver of activity on the platform, saw apronounced drop in trading. Volume for this pair alone fell 32%month-over-month and 20% year-over-year. Across allmajor traded markets on TFX, there was no month-on-month growth, highlightingthe widespread nature of the slowdown.FXSpotStream: FirstSub-$100 Billion ADV in MonthsFXSpotStreamalso reported a significant dip in activity. For the first time since December2024, its average daily volume (ADV) fell below $100 billion. The total ADVcontracted from $122 billion in April to just under $99 billion in May. While otherADV components remained steady at $31 billion, spot ADV saw a more pronounceddecline, shrinking from $91.4 billion to $68 billion. This drop underscores thebroad-based nature of the slowdown affecting both spot and other FX products.Significant Contraction inEuropeEuronext wasnot immune to the broader market malaise, with its FX trading volumesexperiencing a substantial contraction. In May, total volumes fell to $719.8billion, down from $893.1 billion reported in April. The averagedaily volume also decreased, moving from $37.2 billion to $32.7 billion. Thisdecline reflects a general reluctance among institutional players to engage inthe market amid low volatility and limited trading catalysts.Moreover, Fastmatch’s360T platform posted the weakest results among major FX venues in May. Totalturnover plummeted to $605.1 billion, a sharp fall from the nearly $871 billionreported the previous month. The averagedaily volume also suffered, dropping from almost $40 billion in April to just$27.5 billion in May. Withvolatility at a low ebb and few significant economic or geopolitical events tospur trading, institutions largely chose to remain on the sidelines. This article was written by Damian Chmiel at www.financemagnates.com.