Business / Markets

Central banks not to tend to add euros as reserve

(Agencies) Updated: 2015-01-09 14:24

Central banks and reserve managers are breaking from past practice by showing little appetite to add euros as the currency tumbles.

The total amount of reserves held in euros fell 8.1 percent in the third quarter, more than the currency's 7.8 percent decline in the period against the dollar, according to the most recent figures from the International Monetary Fund.

The last two times the euro depreciated 7 percent or more in a quarter, 2011 and 2010, holdings declined much less.

The data suggest reserve managers are passing up the chance to buy euros while they're cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in central banks' euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region's faltering economy.

"Central banks have found new reasons not to feel comfortable with the euro, "Stephen Jen, managing partner and co-founder of SLJ Macro Partners LLP in London, said on Tuesday." Nobody wants to have a negative yield. You're not keeping a currency to lose money."

The ECB has experimented with negative interest rates on deposits in an attempt to draw money out of safe government debt and into the broader economy. Yields on two-year note yields in Germany, the Netherlands and France are all below zero on speculation the ECB is losing the battle against deflation.

Policymakers are signaling they are ready to step up the fight by expanding the money supply through further stimulus, such as purchasing government debt, that typically weigh on a currency's value.

Adding to the pressure is concern that Draghi will not be able to hold the currency bloc together amid signs Greece may quit the euro area after its Jan 25 election.

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