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April 21, 2006
Dollar Diversification In Sweden
The US dollar fell against the euro in European morning trade on Friday as Sweden’s central bank said it had slashed its dollar holdings almost in half.
The Riksbank revealed that it had cut the proportion of dollars in its reserves from 37 to 20 per cent, as well as selling off all its holdings of yen, which previously amounted to 8 per cent of its reserves.
The central bank balanced these disposals by increasing its holdings of euros from 37 to 50 per cent, as well as building a new Norwegian krone position of 10 per cent...
"Today’s announcement will merely add to market fears that the end to the Federal Reserve tightening cycle will encourage more diversification away from the dollar, and into the most liquid alternative of the euro,” said Chris Turner, head of FX strategy research at ING Financial Markets, who reiterated its view that the euro will return to $1.35 by the end of the year.
$1.35. Write that one down.
April 21, 2006 in Exchange Rates and the Dollar | Permalink
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Comments
Posted by:
Stefan Karlsson |
April 21, 2006 at 04:20 PM
Do you mean ex ante unwise or ex post unwise? The latter is inconsequential, no?
What do you believe is a fair EUR/USD rate anyway?
For the moment, I belive that there's too many hikes priced in, in euroland, but I don't believe in more than 5.0 percent by the Fed either. I wouldn't rule out a Fed rate cut within 12-15 months either.
Posted by:
Martin E |
April 22, 2006 at 11:57 AM
"Do you mean ex ante unwise or ex post unwise? The latter is inconsequential, no?"
I regarded the move to sell gold and buy non-Swedish bonds as unwise at the time, so it was unwise both ex-ante and ex-post.
"What do you believe is a fair EUR/USD rate anyway?"
Difficult to say. It is clearly much higher than the current $1.23/€. Just how much higher is difficult to say, but it is higher than the late 2004 peak of $1.38/€.
Posted by:
Stefan Karlsson |
April 22, 2006 at 04:52 PM
I think that despite recent fed rhetoric, they are not done. I could see 5.5%. It depends on prices, and I think that oil and metals will sustain huge rallies ths summer. This will bring new inflationary pressure. the fed will have to deal with it.
besides, when everyone is short the dollar against the euro, you know that trade is going to go the other way. warren buffet found that out last year.
$1.35-I might like to short the euro there!
Posted by:
jeff |
April 23, 2006 at 10:59 AM
Jeff: That's quite possible.
My thinking that the Fed will soon stop depends on the housing market. I expect the slowdown of the housing market to feed through to consumption within 12 months time. This should also push the savings ratio upwards. Investments should also continue to decline the next few months.
Posted by:
Martin E |
April 24, 2006 at 02:32 AM
Last September, the Riksbank made the unwise move of selling gold and buying foreign [non-Swedish] bonds. Since then, gold have risen nearly 50% while the yield on those bonds have been only about 2%.
This move is likely to be less of a disaster as I find it likely that the dollar will fall against most currencies, including the euro.