Forex Flash: Liquidity preference for GBP has increased – UBS

One of the benefits of being a liquid, reserve currency is that they also easily become an international transaction currency, used in finance and commerce. The dominant role of the dollar in trade invoicing is well documented, however the sterling holds its own when it comes to being a financial transaction currency.

For many international investors, not holding sufficient sterling liquidity is simply not an option. According to Research Analyst Gareth Berry at UBS, “Whether by design or accident, the UK's dominant position in international finance has artificially increased liquidity preference for the pound, and this is rather hard to dislodge in the near future. If anything the Eurozone debt crisis has only strengthened its position. Nonetheless, this is no time for complacency – Carney has only five years to make his mark, but financial confidence can evaporate in a matter of days.”