By Frances Yoon - Aug 3, 2010 1:25 PM GMT+0800
The U.S. dollar will extend declines against the euro and the British pound as Asian central banks follow China in shifting their foreign-exchange reserves away from the greenback, according to Faros Trading LLC.
The dollar has weakened against all 16 major currencies monitored by Bloomberg in the past month, sliding 5.1 percent versus the euro and 4.3 percent against the pound. The Dollar Index, which the ICE futures exchange uses to track the greenback against the currencies of six major U.S. trading partners, is headed for its lowest close since April.
“It would be foolhardy to build up U.S. dollar reserves when the bank with the largest U.S. dollar holdings is itself talking about reducing that position,” said Douglas Borthwick, the Stamford, Connecticut-based head of trading at Faros, which executes foreign-exchange transactions for investment firms. He declined to provide any forecasts.
Chinese Premier Wen Jiabao in March urged the U.S. to take “concrete steps” to reassure investors about the safety of dollar-denominated assets after President Barack Obama stepped up spending to help end a recession. The State Administration of Foreign Exchange said last month adjustments to the amount of Treasuries China owns are “normal” and concern the securities may be dumped is “completely unnecessary.”
Treasury Sales
China’s $2.45 trillion reserves are the world’s largest and its holdings of Treasuries, the biggest outside of the U.S., totaled $867.7 billion at the end of May, down from $900.2 billion in April and a record $939.9 billion in July 2009. Japan, Taiwan, South Korea, Hong Kong, India, and Singapore are also among the world’s 10 biggest holders of reserves and they also trimmed their ownership of U.S. government debt in May.
China bought a net 735.2 billion yen ($8.3 billion) of Japanese bonds in May, doubling purchases for this year. Europe remains a key investment destination for China’s reserves, Premier Wen Jiabao told German Chancellor Angela Merkel in Beijing on July 16.
South Korea said today reserves climbed to a record $286 billion in July, boosted by the appreciation of the euro and the pound. Asian central banks have been buying dollars to prevent appreciation in their currencies that may hurt exports and selling the greenback versus European currencies to diversify their holdings, Borthwick said.
To contact the reporters on this story: Frances Yoon in Seoul at fyoon2@bloomberg.net
From Bloomberg published on Aug 3, 2010 1:25 PM GMT+0800