The US dollar nudged off its lows on Monday despite further talk of central banks planning to diversify out of the greenback, or having already done so.
Weekend reports had quoted Kaoru Yosano, chairman of the Japanese Liberal Democratic party's policy council, as saying that there would be “enormous capital flight” from the dollar if the greenback continued to fall. The claim was later denied by Masatsugu Asakawa, the ministry of finance official in charge of managing US government securities, who said there was no plan to reduce US assets.
Many agreed. “The Japanese government is the world's largest holder of US Treasuries and is clearly in no position to be speculating on capital flight from the US,” said Ashley Davies, FX analyst at UBS.
Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi, added: “Given the level of the dollar against the yen, the authorities are more likely to increase their [US Treasury bond] holdings further”.
With Japan seen as poised to intervene in the event of further dollar weakness, the yen slipped 0.7 per cent to Y102.65 against the greenback, taking it 0.5 per cent lower to Y137.86 against the euro and 0.6 per cent softer to Y199.37 against sterling, a two-month low.
The dollar's pause for breath came despite the quarterly report of the Bank for International Settlements revealing that members of the Opec oil cartel have drastically scaled back their dollar holdings.
Opec's dollar deposits fell from 75 per cent of its total deposits in the third quarter of 2001 to 61.5 per cent in the third quarter of this year. Over the same period euro holdings rose from 12 per cent to 20 per cent.
With previously published data from the International Monetary Fund showing that, for developing countries, dollar holdings only fell from 62.9 per cent to 59.3 per cent between 2001 and 2003, Chris Turner at consultancy IdeaGlobal argued that “BIS data would suggest that dollar diversification is accelerating. Yet more reason to sell the dollar.”
Despite this, the greenback held steady at $1.3433 against the euro and $1.9420 against sterling as the jitters caused by a series of explosions in Madrid on Friday, which led the dollar to slump to a low of $1.3460 against the euro, receded.
The Swiss franc was weak, handing back the gains it made on Friday when its “safe haven” status was in vogue after the Madrid attacks. The Swissie was also undermined by Jean-Pierre Roth, the chairman of the Swiss National Bank, who said high oil prices and dollar weakness could slow the pace of interest rate rises “in some countries”. Astrid Schilo, currency economist at IdeaGlobal, said Mr Roth's speech tipped the balance of probabilities away from a Swiss rate hike on December 16. The Swissie slipped 0.6 per cent to SFr1.1382 against the dollar and 0.5 per cent to SFr1.5287 versus the euro.
