Dollar slips again on forex diversification talk
TOKYO (Reuters) - The dollar slipped on Monday on worries that central banks might gradually shift their foreign exchange reserves away from the currency.
The dollar hit a 2-1/2-month low versus the euro and an 18-month low against sterling on Friday after People's Bank of China Governor Zhou Xiaochuan reiterated that Beijing planned to diversify its estimated $1 trillion in reserves.
Xiaochuan, speaking a day after roiling the markets with similar comments, said that China sought to diversify its assets across different currencies and investments, including emerging markets.
Dealers said that such news could help the yen. In recent weeks, the central banks of Russia, Switzerland and the United Arab Emirates have expressed an interest in buying yen or have already shifted funds into the currency.
"News that China, which holds the world's largest foreign exchange reserves, plans to diversify its assets could for now support yen buying sentiment," said Yuichiro Harada, a senior trader at Mizuho Corporate Bank.
The euro inched up to $1.2855 from around $1.2840 in late U.S. trade on Friday, when the single currency rose to its highest since August 21 around $1.2900.
The dollar eased to 117.40 yen from around 117.60 yen.
Sterling was off an 18-month high of $1.9180 hit on Friday, trading at $1.9130.
Traders said the dollar was coming under added selling pressure against currencies with prospects for further rises in interest rates, particularly the euro.
Forecasts are strengthening for the European Central Bank to keep raising rates in 2007, after a widely expected hike in December, traders said.
But it may be premature to conclude the dollar has entered a downtrend, as the currency could still get a lift if upcoming economic data offers evidence of a soft landing for the U.S. economy.
"We aren't sure if we can start betting on a weak dollar trend. The euro is clearly a buy, but we don't yet have a clear reason to sell the dollar," Harada said.
© Reuters 2006. All Rights Reserved.
today.reuters.com |
