US dollar falters as central banks try to restrict dependency

The US dollar lost ground on Friday as traders weighed another signal that central banks are diversifying their foreign currency reserves and reducing their dependency on the greenback.

The euro rose to US$1.2342 at 9pm GMT from US$1.2316 late on Thursday in New York.

The US dollar slid to ?116.60, from ?117.43 on Thursday.

Markets to an announcement from the Swedish Central Bank, the Riksbank, that it had cut the share of its reserves made up of dollar-denominated assets to 20 percent from 37 percent and boosted the share of euro-denominated assets to 50 percent from 37 percent.

It also said it had eliminated the share of yen-denominated assets, which had previously been at eight percent.

"Many might see this as a signal of a wider trend that dollar holdings might eventually be cut," said Naomi Fink, currency strategist at BNP Paribas.

"It did have an impact on the market, although this is not representative of how global reserve holders are going to allocate their reserves," she said.

"Reserve diversification by central banks has been a key driver of dollar weakness this year and this news further serves to reinforce the notion that the greenback may be under more structural pressure going forward," said Boris Schlossberg, a senior currency strategist at Forex Capital Markets.

The decision of the Swedish central bank to disclose the changes in the structure of its reserves follows recent declarations from Middle Eastern central banks that they also intend to diversify their reserves.

Chinese have also repeatedly suggested recently that China would gradually stop buying dollar-denominated bonds.

UBS Daniel Katzive commented: "The news has played towards market concerns that larger reserve managers will continue to diversify holdings to the dollar's detriment, and this is likely to remain an important theme going forward."

The dollar has also been under pressure this week after the US Federal Reserve signaled that its cycle of increasing interest rates could be coming to an end.

Expectations increases in US interest rates have been the driving force behind the dollar, helping it rally against the euro last year.

Traders also looking ahead to the G7 meeting in Washington on Friday.

In late New York trade, the US dollar stood at 1.2760 Swiss francs after SF1.2775.

The pound was being traded at US$1.7818 after US$1.7784.

The greenback lost NT$0.002 to close at NT$32.309 against the New Taiwan dollar in Taipei on Friday. A total of US$1.082 billion changed hands during the day's trading.

The US currency opened at the day's high of NT$32.330 and hit a low of NT$32.235.