US Dollar Reaches Breaking Point as Central Banks Shift Reserves

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A Euro note is arranged above U.S. bills for a photograph in New York in this file photo. Photographer: Daniel Acker/Bloomberg

Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

Sliding Share

The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.

Read moreUS Dollar Reaches Breaking Point as Central Banks Shift Reserves

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Dollar Declines Against Euro, Heads for Biggest Drop Versus Yen Since 1987


U.S. one hundred dollar bills are displayed for a photograph in New York on Dec. 30, 2008. Photographer: Daniel Acker/Bloomberg News

Dec. 31 (Bloomberg) — The dollar fell, heading for its worst annual decline against the yen in more than two decades, on speculation a U.S. report this week will show manufacturing shrank at the fastest pace since 1980.

The currency was also poised for a third annual loss versus the Swiss franc on bets the Federal Reserve’s zero target lending rate will weigh on demand for the greenback. The euro was set for the largest annual gain against the British pound since its 1999 debut on speculation the Bank of England will keep its main lending rate lower than the European Central Bank’s rate.

Read moreDollar Declines Against Euro, Heads for Biggest Drop Versus Yen Since 1987