Dollar's Share of Currency Reserves Likely Growing, BBH's Chandler Says

The dollar’s share in global foreign- exchange reserves probably rose in the first quarter amid a slumping euro and better prospects for U.S. growth, Brown Brothers Harriman & Co. said.

The greenback’s portion of global currency reserves increased to 62.1 percent in the fourth quarter of 2009 from 61.5 percent in the previous three months, the International Monetary Fund said March 31 in a quarterly report. The euro’s share fell to 27.4 percent from 27.8 percent while the yen’s allocation declined to 3 percent from 3.2, according to the IMF.

“We anticipate the dollar’s share of reserves rose again in first quarter of 2010,” Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman, wrote in a note to clients yesterday. The IMF’s next report on official foreign-exchange reserves is due at the end of June, he wrote.

The euro fell 0.5 percent to $1.2312 as of 12:09 p.m. in Tokyo and as low as $1.2144 on May 19, the lowest level since April 2006. It has declined 14 percent this year.

A weaker dollar and underperformance of the U.S. market provided “powerful incentives to be underexposed,” to the world’s largest economy in recent years, Chandler wrote.

“The current environment sees the opposite -- better outlook for the dollar and U.S. economy -- and this may encourage a diversification back into the U.S,” he said.

Russia’s central bank “changed the currency structure of reserves,” raising the U.S. currency’s share by 3 percentage points to 44.5 percent, BNP Paribas said May 18, citing Bank Rossii numbers on the final months of last year. The euro’s portion fell 3.7 points to 43.8 percent.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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