Currency Defense Depleting Official Treasury Stock, Westpac Says

Jan. 31 (Bloomberg) -- Developing nations have been forced to sell Treasuries and use the proceeds to arrest domestic currency weakness, driving a drop in their custody holdings at the Federal Reserve, according to Westpac.

* Official holdings dropped by $21b in week to Jan. 29,

biggest decline since period to June 26, Fed data show; a

gauge of 20 emerging market currencies weakened 2.8% in

January as investors were rattled by a withdrawal of Fed

stimulus that’s for years helped devalue the U.S. dollar * Investors are pulling money from some emerging markets after

data showed Chinese manufacturing contracted and Argentina’s

unexpected devaluation of its peso further dented confidence * Fed this week said it would trim monthly bond purchases by

$10b to $65b, sticking to its plan for a gradual withdrawal

from unprecedented stimulus * “This is a useful indication of the scale of the

acceleration in pressure on emerging market currencies over

the week,” Sean Callow, a Sydney-based currency strategist

at Westpac wrote in a note to clients today; it’s “forcing

a range of central banks to dip into their reserves to

defend their currencies”

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