Overseas investors offloaded euro assets at the fastest pace since the onset of the financial crisis, selling $2 billion-worth of stocks priced in the euro, according to the Swiss bank. Swiss-based investors were the keenest to sell, disposing of $1.3 billion-worth of euro equities.
Half of that was recycled back into Japanese stocks, according to UBS, but the rest was repatriated, adding to the pressure on the Swiss National Bank as it seeks to maintain the SFr1.20 floor in EURCHF.
UBS’s FX flow monitor shows it clients continued to add to their short EUR positions last week, though the flow was polarized.
| G10 weighted flow momentum - week to June 22 |
| Source: UBS |
The bank says hedge funds were tactical buyers of EURUSD, while real-money accounts sold the currency pair for the seventh week in eight.
“Overall, our flow suggests our clients are structurally short, though this is by no means extended,” says Geoffrey Yu, strategist at UBS.
UBS says the standout flow in Europe last week was heavy selling of GBP, as clients positioned for further monetary easing in the UK. That followed the publication of the minutes of the Bank of England’s June Monetary Policy Committee meeting, which showed a dovish shift among UK policymakers.
The bank saw the biggest hedge fund selling of GBPUSD since May 2010, and also large net selling from asset managers and corporates.
Flows in EURGBP were more neutral, with hedge funds net buying the cross but asset managers selling.
However, sterling has managed to stay well supported, with GBPUSD hovering around $1.56 and EURGBP back under £0.80, and not far from the three-and-a-half year low of £0.7950 it hit last month.
That this should happen as the UK economy remains in recession and the Bank of England looks set to loosen monetary policy underlines the fact that, despite last week’s bout of GBP selling, the currency continues to attract haven demand from investors looking to reduce exposure to the eurozone.
Michael Derks, chief strategist at FxPro, says the surprising resilience of GBP in recent weeks has been triggered not just by European investors and corporates looking to lower their exposure to the EUR, but also by high-net-worth investors and real-money managers in Asia diversifying some of their wealth into hard currencies and assets.
That demand from Asia, he says, partly explains why London property prices and gilts are so well bid.
“Both motivations have been a very significant source of capital inflow for the pound,” says Derks. “It would not be a shock if sterling continued to surprise in the second half of this year.”