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U.S. Didn’t Intervene in Currency Markets in Second Quarter

The U.S. didn’t buy or sell dollars to affect foreign-exchange rates in the second quarter, the Federal Reserve Bank of New York said in a report to Congress.

The New York Fed, which acts for the U.S. Treasury and the Federal Reserve in the $4 trillion daily currency market, intervened in the currency market last year for the first time since 2000. The Fed bought $1 billion of the U.S. currency on March 18, 2011, when Group of Seven nations sought to halt the surge in the yen after Japan was struck by the nation’s worst earthquake on record.

The value of the Treasury’s Exchange Stabilization Fund totaled $25.25 billion, while the Federal Reserve System Open Market Account holdings totaled $25.27 billion, the report for the three months ended June 30 released today showed. Both accounts are made up of holdings in euro and yen.

At the end of June, direct holdings of foreign government securities totaled $24.44 billion. Repurchase agreement holdings were $4.84 billion.

On Nov. 30 the Fed, along with the central banks of Canada, England, Japan, Switzerland, and the European Central Bank, agreed to reduce the rate charged on dollar liquidity swap arrangements. In addition, the banks agreed to extend authorization of the swaps through Feb. 1, 2013.

The swap lines were provided by the Fed as part of measures taken since 2007 to combat the effects of the worst financial crisis since the Great Depression. The emergency liquidity tool, which provides dollars as needed, was reintroduced in May 2010 in response to renewed demand by overseas banks for dollar-based funding.

The central bank’s nominal trade-weighted measure of the U.S. dollar appreciated 2.4 percent during the quarter, strengthening 5.3 percent against the euro, while declining 3.7 percent against the yen, the report said.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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