Investors take refuge in the dollar

Added 22nd June 2016

European investors hoarded cash in May. As Brexit-induced uncertainty dominated markets, they poured a net €14bn (£10.8bn, $15.8bn) into USD money market funds, according to Lipper fund flows data.

Investors take refuge in the dollar

In a sign sentiment is firmly risk-off at the moment, equity funds again saw net outflows. This month they amounted to €10.3bn.

The rush for money market funds is not only a flight to safety, however. It also reflect a strong preference for dollars over euros at the moment: euro-denominated money market funds saw net outflows of €3.3bn in May.

And investors are right to bet on the dollar, says Tim Peeters, head of securities portfolios at the multi-family office Portolani in Belgium. In fact, a vote to leave as well as one for remain would be positive for the greenback, he believes.

“Brexit isn’t only a risk for sterling, but also for the euro. If the UK leaves the EU, the euro will destabilise because questions about the long-term viability of the EU and the euro will be raised again. This makes the dollar more interesting,” Peeters explains.

However, this doesn’t mean Brexit will imminently weaken the euro, says the Belgian: “Many hedge funds that have been taking cheap loans in euros will want to pay these back when market sentiment sours. This could drive the euro up in the short-term.”  

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About Author

Tjibbe Hoekstra

Senior Reporter

Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.

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