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2 Jan 2015
Large drop in Euro share of reserves – Nomura
FXStreet (Barcelona) - David Fritz and Jens Nordvig, Research Analysts at Nomura share the IMF COFER data that the Euro share of global reserves registered a significant 1.5% drop, further anticipating the Euro to decline steadily in coming months if this trend continues.
Key Quotes
“The Euro share of global central bank reserves fell significantly in Q3. According to IMF COFER, the Euro share of global reserves dropped 1.5 percentage points to 22.6%. This is one of the largest quarterly declines in the share ever.”
“What is particularly interesting about the fall is that it was a function both of the valuation effect (a weaker Euro vs the USD) and active sales of Euros. This is striking, as normally “portfolio rebalancing‟ would create positive flows (EUR buying) to offset valuation effects when the price of the Euro declines (this happened during the early part of the Euro-crisis for example). As such, it seems that global reserve managers have may have put “portfolio rebalancing on hold‟ in the face of monetary policy divergence and negative interest rates on a large portion of their EUR holdings.”
“If this trend continues, leaving central banks on the sidelines as the Euro declines, the Euro has potential to decline steadily in coming months in line with the trend in private sector flows.”
Key Quotes
“The Euro share of global central bank reserves fell significantly in Q3. According to IMF COFER, the Euro share of global reserves dropped 1.5 percentage points to 22.6%. This is one of the largest quarterly declines in the share ever.”
“What is particularly interesting about the fall is that it was a function both of the valuation effect (a weaker Euro vs the USD) and active sales of Euros. This is striking, as normally “portfolio rebalancing‟ would create positive flows (EUR buying) to offset valuation effects when the price of the Euro declines (this happened during the early part of the Euro-crisis for example). As such, it seems that global reserve managers have may have put “portfolio rebalancing on hold‟ in the face of monetary policy divergence and negative interest rates on a large portion of their EUR holdings.”
“If this trend continues, leaving central banks on the sidelines as the Euro declines, the Euro has potential to decline steadily in coming months in line with the trend in private sector flows.”