'Brexit' fears haunt London's roaring trade in euros

Wed Jul 22, 2015 7:51am EDT
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By Guy Faulconbridge

LONDON (Reuters) - If there is a symbol of British ambivalence to Europe then it may be the euro itself.

The capital of euro trading prospers outside the euro zone, but London's dominance of the $5.3 trillion-a-day foreign exchange market could wane if Britain left the European Union.

    While British leaders have long resisted replacing pounds with euros, traders in the City of London financial center now buy and sell more than twice as many euros as the whole 19-member euro zone and more dollars than the United States.

    For four decades, London has been the undisputed king of foreign exchange, but some investors fear that if British voters decide to leave the EU, the City would eventually lose its top position, especially in euro trading.

    "If‎ the UK left the European Union, London's dominance of foreign exchange including euro trading would gradually decline and then end as the flows moved to Asia and other European capitals," U.S. investor Jim Rogers, who co-founded the Quantum Fund in 1973 with George Soros, told Reuters.

    "London's dominance of the foreign exchange market evolved ‎historically but evolution will continue in other places if the UK leaves. It would be foolish to leave the EU, but politicians have done foolish things since the beginning of ‎time."

    Twelve years after Rogers left Quantum in 1980, Soros used the fund to bet successfully that sterling was overvalued against the Deutsche Mark, culminating in Britain's biggest financial humiliation since the sterling crisis of 1976.

    On so called 'Black Wednesday', Sept. 16, 1992, Prime Minister John Major was forced to pull sterling out of the European Exchange Rate Mechanism (ERM), which had been intended to reduce exchange rate fluctuations ahead of monetary union.   Continued...

British Prime Minister David Cameronarrives at the European Union (EU) Council headquarters at the start of an EU leaders summit in Brussels, Belgium, June 25, 2015.    REUTERS/Darren Staples