China and diversification ....
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Dollar Declines After Reuters Says China May Diversify Reserves
By Daniel Kruger and Min Zeng
Nov. 9 (Bloomberg) -- The dollar fell to the lowest against the euro in more than two months after Reuters reported People's Bank of China Governor Zhou Xiaochuan said he has a ``clear'' plan to diversify the country's foreign-exchange reserves.
China's foreign-currency reserves have exceeded $1 trillion to become the most ever held by a single country, China Central Television reported on Nov. 7, citing the nation's currency administrator.
``It seems to have pressured the dollar,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research.
The dollar traded at $1.2837 per euro at 12:37 p.m. in New York from $1.2757 yesterday. The U.S. currency touched $1.2848, the lowest since $1.2875 on Sept. 5. The U.S. currency also traded at 117.91 yen from 117.84. The dollar earlier reached 118.59 yen.
The People's Bank of China is the fourth central bank to announce it may diversify its reserves in the past two months. The People's Bank of China joins the Bank of Russia, the Swiss National Bank and the Reserve Bank of New Zealand in announcing an intention to diversify currency holdings.
Gold Rises
Gold rose after the announcement by the Chinese central bank's governor. Futures for December delivery increased $15, or 2.4 percent, to $633.30 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain since July 11.
When asked whether China planned to shift its reserves away from Treasury notes and into higher-yielding U.S. corporate and mortgage-backed debt, Zhou said China is considering ``lots of instruments'' for diversification.
``All central banks are trying to diversify,'' he told Reuters on the sidelines of a European Central Bank conference in Frankfurt. ``We have had a very clear diversification plan for several years.''
``The market has long been waiting and fearful of any Chinese indications to diversify,'' said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million worth of funds under management. ``The prime beneficiaries will be the euro, yen, pound and Australian dollar.''
The trade deficit with China rose to an all-time high of $23 billion, from $22 billion in August, according to a government report. Imports from China increased to a record $27.6 billion in September. U.S. exports to the Asian nation fell to $4.6 billion.
`Dramatic and Sustainable'
``The long-term impact is going to be dramatic and sustainable,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto. ``The dollar has long been the reserve currency for the entire world. Now with central banks saying they are going to diversify away from the dollar, the dollar will suffer. The euro will be one of the biggest beneficiaries of the trend.''
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