*NEWS*DOLLAR FALLS ON CENTRAL BANKS’

[Anonymous]

Dollar Falls on Central Banks’
Shifts

NEW YORK- The dollar fell broadly on
Tuesday, weighed down by worries that central banks were diversifying reserves
out of dollar assets, which pushed it below key technical support levels.

South Korea’s central bank said on Monday it planned to
diversify its reserves, which are the world’s fourth largest, into a greater
variety of currencies.
“The pressure on
the dollar…really boils down to the Bank of Korea here. That was the big
impactor from the overnight sessions, and because we had subdued trading
conditions, with the U.S. out yesterday,” said Tim Mazanec, senior currency
strategist with Investors Bank & Trust in Boston.
Early morning in New York, the euro (EUR-) was trading
around $1.3204 according to Reuters data, up about 1.1 percent from levels late
on Monday in New York.
Markets were closed on Monday for the United States
Presidents Day public holiday.
How long
the news will weigh on the dollar remains to be seen, said Mazanec. In part,
this depends on whether the euro pushes above a key resistance area around
$1.3270, he added.
South Korea as a whole holds some $69 billion of dollar
denominated Treasuries, according to Treasury data, while the central bank’s
foreign exchange reserves are worth some $200 billion.
Following the South Korean central bank’s remarks, the
U.S. currency suffered broad-based losses, tumbling to multi-week lows against
most major currencies, seven-year lows against the Korean won (KRW-) and 22-year
lows against the New Zealand dollar (NZD-).
“The comments from Korea came at a time when sentiment
toward the dollar was already softening,” said Ian Gunner, head of foreign
exchange reserve at Mellon Financial.
Traders in the United States also were poised for the
release of the Conference Board’s Consumer Confidence report for February, with
economists’ forecasting a reading of 102.9, and for the release of the Richmond
Federal Reserve manufacturing survey for any hint that accelerating price
pressures could prompt the Federal Reserve to step up the pace of its campaign
of rate increases.
Against the yen (JPY-) the dollar was at 104.20 yen,
down 1.3 percent. North Korea’s offer to return to six-party talks on nuclear
disarmament and moves by China to allow companies to keep more foreign exchange
income also boosted the yen.
Against
the Swiss franc (CHF-), the dollar was down 1.6 percent to 1.1637 francs.

Sterling (GBP-) was up 0.6 percent to $1.9081.

The dollar’s inability to capitalize on
upbeat U.S. economic data last week had already fueled suspicions that the U.S
currency’s New Year rebound had run out of steam.
Foreign exchange traders may have seized on the news
from South Korea in part as a convenient excuse to sell dollars, some said.

“The comments fuel concern about an
ongoing market theme — that reserve managers will step up diversification out
of dollar assets into higher yielding currencies. This is not, however, new
news: some central banks have been diversifying for some time and we would
expect that process to continue,” said Anne Parker Mills, head of foreign
exchange research with Brown Brothers Harriman in New York in a research note.

“We would also argue that while the
banks may want to maximize returns, they don’t want to shoot themselves in the
foot,” Parker Mills added. “Diversification is likely to be conducted with a
view toward minimizing foreign exchange volatility,” she wrote.

Bahrain’s central bank governor
also SAID on Tuesday he saw a growing role for the euro in international
reserves as Europe’s economy starts to grow and capture a bigger part of world
trade.

[Author]

February 23, 2005 at 9:46 AM