12 May 2015
Euro’s share of global currency reserves keeps declining - Nomura
FXStreet (Bali) - According to Nomura, based on the projections on how much further Euro’s share of global currency reserves can fall, it may be hard for EURUSD to break parity in short order.
Key Quotes
"The Euro’s share of global currency reserves has declined substantially since 2009, and the decline has accelerated in the last 6-9 months. Moreover, there is evidence of a shift in central bank behavior. Global central banks are no longer rebalancing by buying Euros on the way down."
"Emerging markets reserve managers have taken the Euro share of reserves down from almost 31% in 2009 to around 20% currently (assuming only FX effects for Q1).The share of EM reserves in Euro is nearing the historical low of around 17% at the inception of the Euro in 1999."
"A sizeable portion of EM reserves in Euro have a negative yield, suggesting further reduction ahead, most likely through lack of roll-over on maturing instruments with negative yield. Hence, from a short-term (cyclical) perspective, the Euro’s reserve currency status is in question."
"Further declines in the Euro’s value combined with net selling of Euros by EM central banks would take the Euro share out of its historical range. If EM central banks stop rolling negative yielding instruments altogether, and the EUR drops to 0.90 by end- 2015, the Euro share would decline to 14%. If EM central banks roll 50% of negative yielding instruments, and the EUR drops to 1.00, the Euro share would decline to around 17%."
"Too early to say if the Euro’s long-term reserve currency status will also be jeopardized."
"Certain central banks, including EU member countries and countries in EMEA with close trade links to the Eurozone, are likely to continue to hold substantial amounts of Euros in their portfolios. This creates a lower limit for how low the share of Euro in global reserves can fall."
"If there is a limit to how much further the Euro share of FX reserves can fall, there may also be a limit to how long central bank flow will be a major driver of the Euro to the downside. This is one reason why it may be hard for EURUSD to break parity in short order."
Key Quotes
"The Euro’s share of global currency reserves has declined substantially since 2009, and the decline has accelerated in the last 6-9 months. Moreover, there is evidence of a shift in central bank behavior. Global central banks are no longer rebalancing by buying Euros on the way down."
"Emerging markets reserve managers have taken the Euro share of reserves down from almost 31% in 2009 to around 20% currently (assuming only FX effects for Q1).The share of EM reserves in Euro is nearing the historical low of around 17% at the inception of the Euro in 1999."
"A sizeable portion of EM reserves in Euro have a negative yield, suggesting further reduction ahead, most likely through lack of roll-over on maturing instruments with negative yield. Hence, from a short-term (cyclical) perspective, the Euro’s reserve currency status is in question."
"Further declines in the Euro’s value combined with net selling of Euros by EM central banks would take the Euro share out of its historical range. If EM central banks stop rolling negative yielding instruments altogether, and the EUR drops to 0.90 by end- 2015, the Euro share would decline to 14%. If EM central banks roll 50% of negative yielding instruments, and the EUR drops to 1.00, the Euro share would decline to around 17%."
"Too early to say if the Euro’s long-term reserve currency status will also be jeopardized."
"Certain central banks, including EU member countries and countries in EMEA with close trade links to the Eurozone, are likely to continue to hold substantial amounts of Euros in their portfolios. This creates a lower limit for how low the share of Euro in global reserves can fall."
"If there is a limit to how much further the Euro share of FX reserves can fall, there may also be a limit to how long central bank flow will be a major driver of the Euro to the downside. This is one reason why it may be hard for EURUSD to break parity in short order."