Euro's Drop Is a Turning Point for Central Banks Reserves
By Lananh Nguyen Jan 7, 2015 8:06 AM ET
Central banks and reserve managers are breaking from past practice by showing little appetite to add euros as the currency tumbles.
The total amount of reserves held in euros fell 8.1 percent in the third quarter, more than the currency’s 7.8 percent decline in that period against the dollar, according to the most recent figures from the International Monetary Fund. The last two times the euro depreciated 7 percent or more in a quarter -- in 2011 and 2010 -- holdings declined far less.
The data suggest reserve managers are passing up the chance to buy euros while they’re cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in other central banks’ euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region’s faltering economy.
“Central banks have found new reasons not to feel comfortable with the euro,” Stephen Jen, managing partner and co-founder of SLJ Macro Partners LLP in London, said by phone on Jan. 6. “Nobody wants to have a negative yield. You’re not keeping a currency to lose money.”
Falling Prices
The euro fell to as low as $1.1819 today, its weakest level since January 2006, after a report showed consumer prices fell 0.2 percent in December from a year earlier, more than the 0.1 percent decline forecast by economists. The data stoked speculation that a sovereign-bond purchase program, aimed at drawing money out of safe government debt and into the broader economy, is now all but inevitable.
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http://www.bloomberg.com/news/2015-01-07/euro-drop-a-turning-point-for-central-bank-reserves-currencies.html
