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Banks opt for sterling over euro

Central banks are more worried about holding euros than sterling, despite the collapse in the pound after last June’s European Union referendum.

A survey of the 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 a surprise, given the pound’s 12 per cent decline against the euro since the Brexit vote.

The survey of 80 central banks responsible for trillion of reserves, which was conducted in February, found that negative interest rates and political uncertainty in Europe were deterring foreign reserve managers from investing.

“Investing in negative-yielding assets is not an optimal investment decision,” one Middle Eastern central banker said.

The results, compiled by Central Banking Publications and HSBC, showed that some respondents had dumped all of their euros.

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 in the long-term outlook.

The one currency almost universally in demand was the dollar, with 84 per cent of respondents saying they were more favourable about it than they were last year, mainly because US interest rates are rising.