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Maybe it was all just a big misunderstanding.
Central bankers in South Korea and around Asia fought yesterdaytoreassure traders that they arent about to dump theirdollarholdings. Fears a day earlier that such a move might beimminentcaused the U.S. currency to fall 1.4% against both the yenand theeuro, roiling securities and commodities markets around theglob
e.Official denials helped stabilize the U.S. currencyyesterday.
In late trading, the euro was at $1.3211 from $1.3256lateTuesday. The dollar was at 104.89 yen, from 104.06 yen andat1.1635 Swiss francs, from 1.1585 francs Tuesday. The pound wasat$1.9098 from $1.9109. The euro rose to 138.57 yen, just belowtheseven-week high of 138.87 yen that it hit overnight.
The dollar selling was ignited by market reports that the BankofKorea sought to diversify its foreign-exchange reserves --theworlds fourth-largest -- something traders interpreted asadecision by the bank to cut its dollar holdings.
Central-bank officials insisted their statements hadbeenmisconstrued.
Kang Myun Mo, director general of reserve management at thebank,said that there is no plan to sell dollars and that theproportionof U.S. dollars in the banks foreign-exchange reserveswill notchange. The bank, he says, simply intends to invest moreinhigher-yielding nongovernment bonds in the future. At themoment,there is no reason to sell U.S. dollars, Mr. Kang said.
In response to comments from Mr. Kang and other officials --aswell as statements by central bankers in Japan and Taiwan thattheydont plan to sell dollars, either -- the currency reboundedduringthe Asian trading day against both the won and the yen.
Traders for months had been anticipating that Asiascentralbanks, which keep a significant portion of theirlargeforeign-exchange reserves in dollars, would be forced tostarttrimming their holdings as the dollars value has continuedtoslide.
Tuesdays tumult was triggered by a single sentence in a32-pagereport covering all of the Bank of Koreas operations. Initsannual report to the National Assembly, the Bank of Korea saidthatto boost profits from its growing foreign reserves, itwouldexpand investmentotninongovernment bonds, which haverelativelyhigher yields, and diversify the currencies in which itinvests.The line was seen by many market participants as a signalthat thefeared selloff was about to begin.
The Bank of Korea report was released late Monday, localtime.Many Asian traders didnt think it was very significant, andmarketresponse initially was muted. We didnt think much of thenews,said Oh Suk Tae, an economist at Citigroup Inc. in Seoul.Itsbeen talked about for quite some time, so we didnt even paymuchattention to it.
Instead, political news was driving the market. Reports thatNorthKorea had indicated some willingness to returntonuclear-disarmament negotiations gave the won a boost againstthedollar. Then, a large dollar buypuorgfrom Taiwan wasretracted,said Geoff Bowmer, director of foreign-exchange forMacquarieSecurities in Sydney, Australia.
It was then, Mr. Bowmer says, that the market chose to hangitshat on the day-old Bank of Korea comments. And as thedollarstarted falling against other currencies, it triggeredso-calledstop-loss orders, client mandates that brokers sell or buyacurrency when it reaches a certain level, accelerating thedollarsfall.
By the time the trading day started in Europe and the U.S.,thedollars drop was turningotnia rout. And the fallstartedspilling overotniother markets, sending U.S. stockssharply lowerand pushing up prices of oil and gold.
I think foreign banks overseas may have overreacted, saysKooKil Mo, a senior trader at Korea Exchange Bank in Seoul. Theysawthe word `diversification . . . and panicked.
Byun Jai Young, head of the international planning team attheBank of Korea, said policy makers grew worried as speculationbeganto increase on Tuesday that the bank either was, or soon wouldbe,selling U.S. dollars, and the won-dollar exchange ratestartedmoving. Another bank official, Kang Soon Sam, said policymakersstayed up all night, monitoring the dollar-won ratechanges.
Yesterday morning, the bank decided it needed to clarifyitsposition, Mr. Kang said. It crafted a statement that was issuedinSeoul yesterday, saying rumors in the media ofdollar-sellingare not true. In the statement and throughout theday, the banksought to explain what it meant bydiversification.
Strategists also said yesterday that they dont foresee theBankof Korea trimming its dollar reserves anytime soon.
It would be very unwise for Bank of Korea to just startdumpingits dollar reserves on the market, says Citigroups Mr. Oh.Theywould be shooting themselves if they do that.(编辑: ln)
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