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

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Feb. 9 (Bloomberg) -- The U.S. didn’t buy or sell dollars to affect foreign-exchange rates in the fourth 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 during the first quarter for the first time since 2000. The Fed bought $1 billion of the U.S. currency on March 18, 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 $25.93 billion, while the Federal Reserve System Open Market Account holdings totaled $25.95 billion, the quarterly report released today showed. Both accounts are made up of holdings in euro and yen.

At the end of December, direct holdings of foreign government securities totaled $25.2 billion. Repurchase agreement holdings decreased from $5 billion in the prior quarter to zero as the rates offered on the investments fell below zero, prompting the Fed to transfer the funds to a deposit account at one of its ``official counterparties.''

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.

Dollar Index

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 trade-weighted measure of the U.S. dollar appreciated 0.7 percent during the quarter, strengthening 3.3 percent against the euro, while falling 0.2 percent against the yen, according to the report. The greenback lost 2 percent to 6 percent against major commodity currencies such as the Canadian, Australian, and New Zealand dollars.

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

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

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