By Ira Iosebashvili
The proportion of euros held in official foreign-exchange
reserves dropped in the first quarter, suggesting that central
banks allowed their allocation of the single currency to decline
amid negative interest rates in the eurozone.
Central banks held 21% of their reserves in euros at the end of
the first quarter, the lowest share in 13 years, data released
Tuesday by the International Monetary Fund showed. That is down
from 22% at the end of 2014.
The percentage held in U.S. dollars rose to 64%, from 63% at the
end of the fourth quarter.
The data, known as Cofer for Currency Composition of Official
Foreign Exchange Reserves, is released on the last business day of
every quarter with a six-month lag.
Commanding some $12 trillion, central banks are by far the
biggest participants in the foreign-exchange markets, and their
actions can drive long-term trends in currencies.
For years, central banks sought to trim their dollar holdings,
as the U.S. currency sagged under the Federal Reserve's bond-buying
program, which sought to kick-start the U.S. economy by purchasing
government securities and lowering interest rates.
The shift out of the euro comes after the European Central Bank
cut interest rates to below zero a year ago for the first time, in
a bid to stave off recession. Forced to pay for the privilege of
owning euros, central banks have been trimming their share of the
European currency, with much of those funds finding their way into
dollars.
In March, the ECB kicked off its own large-scale bond-purchasing
program, adding to the pressure on its currency.
The euro fell as low as $1.0462 in the first quarter, its
weakest level in more than 12 years, lowering the valuation of
reserves held in the currency. While central banks would
historically use dips in the euro as an opportunity to buy, "it
seems that global reserve managers continue to have 'portfolio
rebalancing' on hold in the face of monetary-policy divergence and
negative interest rates," said Jens Nordvig, managing director at
Nomura, in a note to clients.
Interest rates in Europe have crept higher since March amid
improving economic data on the Continent, buoying the euro.
In late New York trading Tuesday, the European currency was at
$1.1141.
"The question at this point is whether or not this trend
continues in light of the fact that European interest rates have
rebounded," Mr. Nordvig said.
At the same time, some investors have grown uncertain about
whether the dollar will resume a rally that saw it rise by its
sharpest level in 40 years between July 2014 and March 2015--a time
during which central banks increased their allocations of the U.S.
currency.
While the Fed is expected to tighten monetary policy for the
first time in nearly a decade this year, some market watchers
believe that an uneven U.S. economy will keep the central bank from
raising borrowing costs very far.
The Wall Street Journal Dollar Index, which measures the buck
against a basket of 16 currencies, closed at 86.60 Tuesday, down
3.1% from its March high.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com