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Foreign Exchange

FX news: Dollar less reserved, SDRs more forward

The IMF’s Currency composition of official foreign exchange reserves (Cofer) report for the first quarter of 2010 was released on Wednesday. It contained a surprise for those who believed that there had been rotation out of the troubled EUR into USD: the dollar’s share of global currency reserves in fact fell from 62.17% to 61.54%.

The data does not take into account changes in exchange rates – the DXY index was up more than 4% over the first quarter – so the decline in dollar reserves is actually larger than the headline figure. As Steven Englander at Citi writes: “Given that the USD appreciated in the first quarter, the fact that the USD share of reserves declined implies some active diversification by reserve managers out of USD. Conversely, the fact that the EUR share of reserves was roughly steady [falling to 27.19% from 27.30%] despite EUR depreciation suggests that reserve managers were not actively engaged in a shift out of EUR and in fact bought the currency. Accounting for the change in exchange rate, a very rough estimate is that reserves managers bought around $75 billion of EUR.”

The Swiss National Bank was assumed to have been protecting 1.4650

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