Euro out of favour with emerging economies

New data from the International Monetary Fund shows that emerging economies have cut the weighting of EMU bonds in their holdings. Levels are down to 24.7 per cent from a peak of 30 per cent at the start of the EU crisis in 2010 – with a record drop in the third quarter of 2012.

Jens Nordvik, currency chief at Nomura, said that this is because these nations have lost their appetite for peripheral EMU bonds.

The IMF data also show a record $19bn (£12bn) increase in sterling reserves by advanced central banks to $98bn. This is the largest three-month surge ever recorded. Experts believe this is most likely due to extreme measures taken by the Swiss National Bank to hold down the franc. The SNB has already bought an estimated $80bn-worth of euro bonds and is increasingly switching to other assets.

The result is that the Bank of England has been thwarted in its efforts to weaken the pound. According to HSBC’s David Bloom, the Swiss and UK central banks are in effect fighting a low intensity battle against each other.