In the second quarter, global forex reserve managers sold $155 billion worth of USD assets, marking the largest sell-off since the third quarter of 2023. The move comes as the dollar's rebound prompted a diversification into other currencies, according to newly released data from the International Monetary Fund (IMF).
Among the currencies tracked by the IMF, the Japanese yen saw the largest inflows, followed by the euro. Analysts from JPMorgan, including Nikolaos Panigirtzoglou, noted that the appreciation of the dollar in the second quarter by 2.5% led to a rebalance of portfolios, with 'other' currencies gaining the most, evidencing a strong motivation for reserve diversification.
The significant reallocation occurred before a considerable interest rate cut by the Federal Reserve, which resulted in a 1.5% depreciation of the dollar in the third quarter. Specifically, the yen received $28.4 billion in inflows and the euro followed with $16.8 billion. Other currencies collectively saw inflows of $47.3 billion. Gold also benefited from this diversification trend, as central banks increased their purchases last month.
