Global equity and bond indices need one agreed exchange rate per day so that everyone values the same portfolio the same way. The 4pm London benchmark fills that role, calculated from actual trades and quotes over a window around the hour.
Because passive funds must trade at whatever the fix prints, order flow concentrates into that window. Volume and volatility spike, spreads can widen, and month-end fixes are larger still as portfolios rebalance. The window was lengthened after regulators found traders had colluded around the older, shorter one, a case that led to large bank fines in 2014 and 2015.
Example: a fund rebalancing EUR 500 million into dollars at a fix of 1.0840 receives $542 million. A one-pip difference in the fix is $50,000 on that trade.
Related: mid-rate, market-manipulation