Currency Reserve Managers React to Dollar Moves, Not Drive Them, StanChart Says

By Yoruk Bahceli

LONDON (Reuters) – Reserve managers tend to buy the dollar when it weakens and sell when it rises, suggesting they could play a smaller role in boosting the greenback than private investors, Standard Chartered said in a note on Thursday.

Demand from central banks managing trillions of dollars worth of monetary reserves is seen as crucial to the dollar’s position as the world’s leading safe haven currency.

But US President Donald Trump’s confrontations with long-time allies over trade and security this year, along with his attacks on the Federal Reserve, have raised concerns about the status of the dollar, which has plunged 9% this year.

However, Standard Chartered analysis questioned whether reserves still make the dollar exceptional.

It found that U.S. dollar reserve levels and the dollar index, which tracks the dollar against a basket of currencies, have moved in opposite directions for 17 of the last 20 quarters.

He noted that the dollar fell 6.6% in the second quarter, which began with Trump’s Liberation Day tariff announcements roiling markets, but dollar reserves increased by about $50 billion.

“This suggests that private sector buying has boosted the dollar, and reserve managers have been reactive,” said Steve Englander, global head of G10 currency research at the bank.

Englander said reserve managers may be balancing competitiveness and portfolio considerations.

“If the private sector is a net seller of dollars, it is difficult to see reserve managers hoarding and actually sinking the dollar,” he wrote.

“On the other hand, when the private sector buys dollars, reserve managers take the opportunity to reduce their exposure, while avoiding selling if it appears that their sale will increase a competitiveness shock.”

The size of directional flows from private sector investors may also have increased relative to reserve managers, he noted, so they are likely to outpace them.

(Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe)