Day after day we see the headlines that this central bank or that is trying to defend its currency by selling dollars from their reserve stash. Some of those dollars are then bought back versus major currencies as the central banks try and maintain the allocations they have for individual currencies.
The best example of this is in Russia where the central bank maintains a basket of 55% dollars and 45% euros. After intervening to buy roubles versus the dollar, the Russian central bank then has to enter the market to sell EUR/USD to keep the basket in balance. This keeps a near-constant offer in EUR/USD, and has for almost three months now.
To combat these sharp moves, Brazil, Mexico, Russia, and India collectively have drawn down their reserves by more than $75 billion since the end of September, selling dollars to protect their currencies, according to Win Thin of Brown Brothers Harriman.
