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Sterling is no safe haven, shows Bank of England FX survey

The results of the latest Bank of England foreign exchange turnover survey have again highlighted the vulnerability of sterling in stressed market conditions.


The latest survey carried out by the Bank of England’s (BoE) foreign exchange joint standing committee appears to confirm the view that trading in sterling does badly in conditions of widespread stress.

Data gathered from 27 financial institutions in the UK for the April 2020 survey shows that while there was a decline in average daily turnover for all the major currency pairs compared with the findings of the previous survey in October 2019, sterling trading fell particularly sharply, with USD/GBP and EUR/GBP down by 32% and 31% respectively.

The previous survey reported that USD/GBP was the second most-traded currency pair after USD/EUR, with a gap of almost $5 billion a day to USD/JPY. However, according to the new data, daily USD/JPY trading exceeded that of USD/GBP by almost $27 billion in April.

The appeal of the yen as a safe-haven currency explains why trading volumes overtook those of sterling at a time when markets were reeling from the effects of coronavirus lockdowns.

“The pound is among the least defensive currencies in the G10 and investors typically avoid it during periods of stress and high volatility,” explains Kenneth Broux, head of corporate research FX and rates at Societe Generale.

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