The dollar is on a firmer footing today, EUR/USD down at 1.4180 compared to a European opening up around 1.4310, while cable is down at 1.6420 from an early 1.6610. While risk appetite, in general, is taking a rest, the main trigger for the USD appreciation was a report which came out over reuters.
Officials and other people with direct knowledge of policymaking are reported as indicating that Asia’s richest central banks would likely shrug off portfolio losses from a U.S. sovereign credit rating downgrade and keep buying U.S. treasuries to help maintain market stability.
A U.S. rating cut would weaken the dollar and wreak havoc on investments around the world benchmarked against treasuries, but the sources said it would not cause China, Japan, India and South Korea to change their reserve policies because there are no alternatives to the liquidity afforded by the dollar. Those four countries control about half of the world’s foreign exchange reserves.
The market had gotten awfully short the greenback in recent sessions and this was just the excuse the market needed for a little bout of profit taking.
