Central banks prefer to hold Sterling than Euros
April 4, 2017

Central banks are more concerned about holding Euros than Sterling, despite the collapse in the Pound after last June’s referendum where the UK voted to leave the European Union. A survey of fund managers who look after central banks’ foreign exchange reserves found that 77 per cent see the Euro as a less attractive asset class than last year compared with 68 per cent who felt the same about Sterling. The findings are regarded as a surprise in the industry, given the Pound’s 12 per cent decline against the Euro since the Brexit vote. The survey of 80 central banks responsible for $6 trillion of reserves, which was conducted in February, found that negative interest rates and political uncertainty in Europe were significant factors deterring foreign reserve managers from investing. The results, compiled by Central Banking Publications and HSBC, showed that some respondents had dumped all of their Euros. However, it seems that the Pound has not lost as much support among the central banking community. Although half of reserve managers were worried about the short-term outlook for Sterling and felt that it could fall further, 71 per cent were confident about the long-term outlook. Meanwhile, the one currency almost universally in demand was the US Dollar, with 84 per cent of respondents saying they were more favourable about it than they were last year, mainly because of the recent rise in US interest rates.

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