Dollar falls as Asia woos euro

The US dollar saw a dramatic fall in value – the highest single loss in four months – after traders interpreted comments from the South Korean central bank as meaning that Asia would be selling off its US dollars.

Japan is the single largest holder of US dollar reserves in the world, and Sourth Korea holds the fourth, so it is essential for the dollar to contonue to have strong holdings in Asia.

Later comments, by both Japan and South Korea, that they would merely be diversifying future reserve purchases, rather than selling of dollar reserves, were positively received by investment markets and helped the dollar to regain value.

However, markets remain uneasy at the overal movement of national central banks from dollar reserves to more diversified reserves. A recent report from Central Banking Publications found that of 65 countries that responded to their questions, 35 would be increasing euro holdings, while 29 would be actively reducing dollar reserves.

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