Friday, April 21, 2006
Swedish Central Bank Lightens Up On US $
Some US dollar news. "The euro spent most of the Asian session and the early part of European trade mired below the 1.2300 figure until news that the Swedish Central bank made a major change in its foreign exchange reserves catapulted the currency higher. The pair rose 50 points in a matter of 5 minutes."
"In an announcement on its website the Riksbank noted that it reduced its dollar denominated assets from 37% to 20% while increasing its holding of euros from 37% to 50% of total reserves. Reserve diversification by central banks has been a key driver of dollar weakness this year and tonight’s news further serves to reinforce the notion that the greenback may be under more structural pressure going forward."
"'Many might see this as a signal of a wider trend that dollar holdings might eventually be cut,' said Naomi Fink, currency strategist at BNP Paribas. 'It did have an impact on the market, although this is not representative of how global reserve holders are going to allocate their reserves. The market is much more interested in larger reserve holders,' Fink said."
"In New York trading, the euro rose 0.5% to $1.2338, while the dollar was down 0.5% at 116.92 yen. The dollar weakened 0.3% against the British pound, with one pound fetching $1.7820. The dollar also changed hands at 1.2748 Swiss francs, down 0.4%."
"Also on Friday, Russian Finance Minister Alexei Kudrin said that the dollar wasn't the absolute reserve currency and that the U.S. swelling deficit could affect its stability eventually."
"The news from Sweden and Russia followed comments in the past month by Middle Eastern central banks that they're looking to diversify reserves away from the greenback and raise the euro's weighting. Chinese officials have also repeatedly suggested that Beijing should gradually stop buying dollar-denominated bonds."
"'Reserve diversification by central banks has been a key driver of dollar weakness this year and this news further serves to reinforce the notion that the greenback may be under more structural pressure,' said Boris Schlossberg, currency strategist."
"But Marc Chandler, global head of currency strategy at Brown Brothers Harriman, noted that while the Swedish announcement 'caught the market a bit wrong-footed,' it's not 'as dollar negative as initial market reaction may suggest. There does appear to be an adjustment of reserve composition, but an orderly implementation of it need not impact prices, nor does it change the role of the dollar in the world economy. It remains the single largest reserve asset,' he said."
"The dollar fell four sessions out of five this week as traders scaled back expectations that the Federal Reserve will continue to hike interest rates aggressively."
"In an announcement on its website the Riksbank noted that it reduced its dollar denominated assets from 37% to 20% while increasing its holding of euros from 37% to 50% of total reserves. Reserve diversification by central banks has been a key driver of dollar weakness this year and tonight’s news further serves to reinforce the notion that the greenback may be under more structural pressure going forward."
"'Many might see this as a signal of a wider trend that dollar holdings might eventually be cut,' said Naomi Fink, currency strategist at BNP Paribas. 'It did have an impact on the market, although this is not representative of how global reserve holders are going to allocate their reserves. The market is much more interested in larger reserve holders,' Fink said."
"In New York trading, the euro rose 0.5% to $1.2338, while the dollar was down 0.5% at 116.92 yen. The dollar weakened 0.3% against the British pound, with one pound fetching $1.7820. The dollar also changed hands at 1.2748 Swiss francs, down 0.4%."
"Also on Friday, Russian Finance Minister Alexei Kudrin said that the dollar wasn't the absolute reserve currency and that the U.S. swelling deficit could affect its stability eventually."
"The news from Sweden and Russia followed comments in the past month by Middle Eastern central banks that they're looking to diversify reserves away from the greenback and raise the euro's weighting. Chinese officials have also repeatedly suggested that Beijing should gradually stop buying dollar-denominated bonds."
"'Reserve diversification by central banks has been a key driver of dollar weakness this year and this news further serves to reinforce the notion that the greenback may be under more structural pressure,' said Boris Schlossberg, currency strategist."
"But Marc Chandler, global head of currency strategy at Brown Brothers Harriman, noted that while the Swedish announcement 'caught the market a bit wrong-footed,' it's not 'as dollar negative as initial market reaction may suggest. There does appear to be an adjustment of reserve composition, but an orderly implementation of it need not impact prices, nor does it change the role of the dollar in the world economy. It remains the single largest reserve asset,' he said."
"The dollar fell four sessions out of five this week as traders scaled back expectations that the Federal Reserve will continue to hike interest rates aggressively."
# posted by Ben Jones @ 11:15 AM 
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When I checked just now gold was up over $12. You can bet the technicians will be watching how the markets trade after the sell-off.
Its not like Sweden is looking at different data than the rest of the Eurozone, or the rest of the world for that matter. IMHO chances are better than good that we'll see this move repeated by other central banks in the weeks ahead. With every such move we should see another bump in the value of gold.
Furthermore, its looking like Bush's meetings with Hu Jintao have been a wash. (And why should China back off from a formula that's working so well for them?). None of the fundamentals look set to change any time soon.
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