Central banks rebuilding foreign-exchange reserves at the fastest pace since 2004 are crowding out private investors seeking U.S. dollars, boosting demand even as the Federal Reserve considers printing more currency.
After falling to an all-time low of 60.5 percent in the second quarter of last year, the dollar’s share of global reserves rose 1.6 percentage points to 62.1 percent in December, the latest International Monetary Fund figures show. The buying has left the private sector with $2 trillion less than it needs, according to investment-flow data by Morgan Stanley, which sees the dollar gaining 8.2 percent in 2012, the most in seven years.
The dollar extended last week’s 1 percent drop against the euro as projections indicated politicians who support Greece’s bailout won enough seats in elections to control parliament, easing concern the nation would be forced out of the euro bloc.
Spain’s 10-year bond yield surged to a euro-era record 6.998 percent on June 14, less than a week after the fourth-largest euro member requested a 100 billion-euro ($127 billion) bailout for its banks. The similar-maturity Italian yield rose to 6.342 percent, the highest since Jan. 20.
“The risk is that the focus could shift away from Europe,” Hettinger, who’s based in Zurich and expects the dollar to end the year at current levels against the euro, said in a telephone interview on June 15. “The U.S. has a budget deficit that needs to be financed with capital inflows and U.S. interest rates are very low.”
Paris-based Pernod Ricard SA, the maker of Chivas Regal, would have to offer a higher interest margin borrowing in dollars on a five-year 2.5 billion-euro credit line, two people with knowledge of the transaction said on April 4. They asked not to be identified because the terms hadn’t been set.