Greenback Weakens after Chinese Bankers’ Comments
Monday, October 26, 2009, 08:55 GMT
Greenback continues to head southwards this week on remarks made by the Chinese central bank researcher Zhou hai (Division chief, financial research department, People’s Bank of China) that China should move its massive foreign reserves into Euro and Yen holdings instead of USD. The news attracted an immediate reaction as the USD plunged to a 14-month low against the Euro as it fell against 12 of the 16 traded currencies.
Greenback dropped to $1.5063, the lowest level since August-08 as the remarks refueled concerns over greenback’s status and resulted in a massive sell off. Also, since the BOJ is likely to lag behind exit policies of other central banks, the JPY may possibly replace the greenback as the most-favored funding currency for risk trade.
China accounts for the largest foreign reserves in the world, accounting at $2.273 trillion at the end of September. According to the consensus, 2/3rd of those reserves constitute the greenback. So, if the Chinese government shifts its reserves to some other currency then it will fuel major weakness in the greenback because of excessive supply thereby, creating demand for the Euro and Yen.
