1 Jul 2015
Central Bank Reserves and negative EUR rates – DB
FXStreet (Barcelona) - Alan Ruskin, Macro strategist at RBS, offers the Q1 IMF COFER summary, and further explains that the negative rates might not have been necessarily the key factor behind EUR’s slide.
Key Quotes
“Q1 IMF COFER data showed a sharp quarterly increase in the USD’s share of allocated reserves from 63.1% to 64.1% and a steep decline in the EUR share from 22.1% to.20.7%. These headline grabbing numbers are a very misleading as an indication of ‘reserve diversification’. Adjusting for valuation effects, EUR reserve holdings went up sharply by 60bn Euros on the quarter, compared with a $49bn increase in USD holdings.”
“The Q1 2015 data much like the Q4 2014 numbers did not validate the thesis that official EUR selling allied to negative rates was a big factor behind EUR/USD’s dramatic slide over this period. Instead the large increase in Euro holdings provides i) some tentative signs that Central Banks do not want their EUR share of allocated reserves to drop dramatically below current levels; and, ii) the private sector reallocation from EUR fixed income assets to USD Treasury, agency and corporate bonds still shows up as the dominant flow behind USD strength in H2 2014 & Q1 2015.”
Key Quotes
“Q1 IMF COFER data showed a sharp quarterly increase in the USD’s share of allocated reserves from 63.1% to 64.1% and a steep decline in the EUR share from 22.1% to.20.7%. These headline grabbing numbers are a very misleading as an indication of ‘reserve diversification’. Adjusting for valuation effects, EUR reserve holdings went up sharply by 60bn Euros on the quarter, compared with a $49bn increase in USD holdings.”
“The Q1 2015 data much like the Q4 2014 numbers did not validate the thesis that official EUR selling allied to negative rates was a big factor behind EUR/USD’s dramatic slide over this period. Instead the large increase in Euro holdings provides i) some tentative signs that Central Banks do not want their EUR share of allocated reserves to drop dramatically below current levels; and, ii) the private sector reallocation from EUR fixed income assets to USD Treasury, agency and corporate bonds still shows up as the dominant flow behind USD strength in H2 2014 & Q1 2015.”