Central Banks Retreat From U.S. Dollar

SourceThe Wall Street Journal
SectorFinancial Services
CountryMiddle east

Among those paring U.S. dollar holdings in recent months: central banks. The dollar’s share of global reserves has decreased to its lowest level since 1995, according to International Monetary Fund figures on central banks’ foreign-exchange holdings released last week. The currency now stands at 59% of global reserves as of December 2020—a 1.5 percentage point decline over the quarter. The WSJ Dollar Index slipped 0.1% Tuesday, headed for its fourth decline in five sessions. It has fallen around 8% from a year ago, after the pandemic fueled a rush into ultrasafe assets and the dollar surged against the euro and British pound. Although the dollar has edged higher year-to-date, some on Wall Street expect factors including trade deficits and China’s expansion to weigh on the currency this year.

Central banks are the largest players in the foreign-exchange market, overseeing nearly $12 trillion in reserves, so investors watch their holdings closely. “Several structural trends skew the medium-term dollar outlook in ...read more...