Euro gaining strength as Asian Economies diversify their holdings

Euro has strengthened against Dollar  in last 2 months as China is diversifying its holdings of foreign reserves over past few months. China and other Asian Economies  are moving away from from US treasury holdings and buying into Yen and Euro dominated assets.

Chinese US holdings Excessive  accumulation of Yen based Assets by China lead to historical rise of Yen against Dollar last month as Japanese government continues to worry that further strengthening of Yen may hurt profit margins of export based companies like Toyota and Honda to large extent. Japanese government is already planning its way to put some regulatory controls over the strengthening of its currency.

Euro is rising as other Asian economies too are selling US treasury bonds and buying into Euro.

As reported by Bloomberg, "The Asian nation has been buying “quite a lot” of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought1.73 trillion yen ($20.2 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years."

euro usd"Asian central banks holding some 60 percent of the world’s foreign-exchange reserves are turning away from the dollar. Concerned about weakening U.S. growth and the Treasury’s record borrowing, they are switching toward euro assets to safeguard reserves, driving gains in the 16-nation currency. South Korea, Malaysia and India reduced their holdings of Treasuries, U.S. government data show."

The Dollar Index’s 5.2 percent drop in July, the biggest decline in 14 months, failed to dissuade most foreign-exchange forecasters from predicting the greenback will strengthen against the euro and yen by December.

dollar index1Chinese Premier Wen Jiabao urged the U.S. in March to take “concrete steps” to reassure investors about the safety of dollar assets. The nation, which is the largest overseas holder of Treasuries, trimmed its stockpile of U.S. debt to $867.7 billion in May, from $900.2 billion in April and a record $939.9 billion in July 2009.

In spite of all developed economies being in financial mess and caught up in economic uncertainty, there are not much much options left with Asian economies than to choose least worst among them.

Hitesh Anand

I am a post graduate from Newcastle University, UK. I like studying and analyzing economic data and financial health of world.

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