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May 31, 2013
Flash: Asset managers seek the USD in the most liquid markets – UBS
FXstreet.com (Barcelona) - G10 currencies traditionally benefiting from diversification will have to adjust to new realities.
According to Gareth Berry, a Research Analyst at UBS, “The euro probably has the most to lose at this point, which will be a worry for periphery governments still looking for marginal buyers of their debt.” In 2011 and 2012, during periods of Eurozone financial instability yet still-firm reserve growth, the EUR/USD returns decoupled with that of GBP/USD and AUD/USD - led by reserve managers only buying non-Eurozone AAA.
More recently, correlations in returns are converging again but only with a stronger dollar. “This shows that tougher conditions for AAA economies don't imply a transfer of interest back into the Eurozone. If anything, the euro will be more at risk from reserve manager flow: if at-risk central banks choose to boost dollar holdings as capital flight protection, EUR and JPY will feature highly on the 'to-sell' list as reserve managers will seek dollars in the most liquid markets.” Berry adds.
According to Gareth Berry, a Research Analyst at UBS, “The euro probably has the most to lose at this point, which will be a worry for periphery governments still looking for marginal buyers of their debt.” In 2011 and 2012, during periods of Eurozone financial instability yet still-firm reserve growth, the EUR/USD returns decoupled with that of GBP/USD and AUD/USD - led by reserve managers only buying non-Eurozone AAA.
More recently, correlations in returns are converging again but only with a stronger dollar. “This shows that tougher conditions for AAA economies don't imply a transfer of interest back into the Eurozone. If anything, the euro will be more at risk from reserve manager flow: if at-risk central banks choose to boost dollar holdings as capital flight protection, EUR and JPY will feature highly on the 'to-sell' list as reserve managers will seek dollars in the most liquid markets.” Berry adds.