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Russia may switch to euro for currency stability Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=ay9X.ms1Ta7E&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=ay9X.ms1Ta7E&refer=home
Euro Rises to Record as Russia Says It May Lift Euro Reserves
Nov. 23 (Bloomberg) -- The euro rose to its sixth record this month against the dollar after Russia's central bank said it may lift the share of the 12-nation currency in its reserves.
``Most of our reserves are in dollars, and that's a cause for concern,'' First Deputy Chairman Alexei Ulyukayev told reporters in Moscow. ``Looking at the dynamics of the euro-dollar rate, we are discussing the possibility to change the reserve structure.''
Against the dollar, the euro gained to $1.3072 at 9:19 a.m. in New York from $1.3049 late yesterday, according to EBS, an electronic foreign-exchange dealing system. It earlier reached a record high of $1.3094. The dollar has lost 7 percent against the euro in the past three months. Versus the yen, the euro rose to 134.88 from 134.58.
``Central banks are becoming more like professional fund managers -- they want to maximize returns,'' said Steven Saywell, chief currency strategist at Citigroup Inc. in London. ``It makes sense for central banks to reduce any aggressive overweighting in dollars.''
The dollar's share of the world's foreign-currency holdings fell to 63.8 percent at the end of last year from 66.9 percent two years before, according to the International Monetary Fund. The euro's share rose to 19.7 percent from 16.7 percent in that period.
``The message is quite clear -- the euro is going to be more favored in comparison to the dollar, and the impact will be dollar-negative,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG.
`Orderly' Drop
Demand for the dollar has waned on concern about a record deficit in the U.S. current account, the broadest measure of trade because it includes some investment flows. The shortfall reached $166.2 billion in the second quarter. A wider deficit means more dollars need to be converted to other currencies to pay for imports.
``Clearly both policy makers and market participants believe that a weaker dollar, so long as it goes in an orderly way, is part of the adjustment process to reduce those imbalances,'' said Richard Berner, chief U.S. economist in New York at Morgan Stanley, the second-biggest U.S. securities firm.
The U.S. currency tumbled on Nov. 19 after Federal Reserve Chairman Alan Greenspan said overseas investors may tire of financing the U.S. current-account gap and diversify into assets denominated in other currencies. ``A diminished appetite for adding to dollar balances must occur at some point,'' he said at the European Banking Congress in Frankfurt.
`Benign Neglect'
``It is going to remain difficult for the dollar to perform well when there is an apparent Washington endorsement of a weaker dollar,'' said Todd Elmer, a currency strategist in New York at Barclays Capital Inc. ``Greenspan made it clear that he is comfortable with a falling dollar, and the Treasury department is practicing a policy of benign neglect.''
Barclays predicts a drop to $1.32 per euro and 102 yen in three months.
Pittsburgh-based H.J. Heinz Co., the world's biggest ketchup maker, today said fiscal second-quarter earnings rose 3.9 percent as sales increased overseas, helped by a weaker U.S. dollar.
U.S. President George W. Bush two days ago said he backed a ``strong dollar'' and pledged to cut the U.S. federal budget deficit.
``Having a strong currency is very much in our interest,'' Robert Rubin, chairman of the executive committee at Citigroup Inc. and former U.S. Treasury secretary, said last night.
`In the Zone'
Russia's foreign currency and gold reserves are at a record high $113.1 billion -- a third in euros and the balance mainly in dollars, central bank Deputy Chairman Konstantin Korishchenko said in an interview this month.
The dollar traded at 103.18 yen, from 103.15 late yesterday, after rising earlier amid speculation Japan will sell its currency. The U.S. currency dropped to a 4 1/2-year low of 102.70 on Nov. 19. Japan will monitor foreign-exchange markets ``very closely,'' Vice Finance Minister Koichi Hosokawa said yesterday in Tokyo.
``We're in the zone where it seems every push higher in the yen could trigger action from Japan,'' said Tetsu Aikawa, a currency salesman for institutional customers at UFJ Bank Ltd., a unit of Japan's fourth-largest lender.
``It isn't easy to keep buying the yen,'' said Aikawa, who predicts the yen may slide to 103.80 this week.
South Korean Won
South Korea's won declined against the dollar after the central bank sold the currency to stem an appreciation to a seven- year high, said traders who deal with the central bank.
Kim Dong Ick, deputy director of the foreign-exchange division of the Ministry of Finance and Economy's international finance bureau, declined to comment.
``Other Asian central banks have a better opportunity or environment to defend current moves or levels that they see as representing the fair value'' of their currencies, said David Mozina, a currency strategist at ABN Amro Holding NV in Sydney.
``We have the BOK reportedly intervening today,'' said Mozina. ``That rekindled fears'' Japan may also ``test the market.''
Trading in the foreign-exchange market may be less than the usual $1.9 trillion per day this week because of holidays in Japan today and in the U.S. on Nov. 25. Japan sold its currency on Jan. 2 during a holiday, according to Ministry of Finance data.
``I would suggest squaring up on short-dollar positions in the event that the BOJ/MOF decide they want to'' sell, said Michael Woolfolk, a New York-based currency strategist at Bank of New York. Otherwise, ``you're going to have to be watching the monitors closely'' during the holidays.
A short dollar position is a bet the U.S. currency will fall.
Japanese exporters will be hurt should the yen stay above 105 per dollar, said Hiroshi Okuda, chairman of Toyota Motor Corp. and head of Japan's biggest business lobby, at a press conference in Tokyo yesterday.
Last Updated: November 23, 2004 09:22 EST
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