Frankfurt (Reuters) – Last year, the dollar continued to lose its standing as the leading global currency, with many of its competitors, along with gold, gaining ground, but not the euro in particular.
Since April, investors have been offloading dollar assets, driven by unpredictable US economic policies. In fact, ECB president Christine Lagarde mentioned this might be a chance for the euro to step up as an alternative to the dollar.
However, data prior to this recent upheaval indicated that the euro wasn’t as favored, though non-traditional currencies, aside from the Japanese yen, might see some benefits.
In 2024, the dollar lost two percentage points in global forex holdings. The yen and the Canadian dollar made significant gains, whereas the euro saw only a modest increase, according to the ECB’s update on Wednesday.
Currently, the dollar holds a 58% share in the global forex reserve, which has dipped 10 percentage points in ten years. Meanwhile, the euro lingers just under the 20% mark.
Gold, on the other hand, emerged as a major beneficiary last year. Central banks boosted their gold reserves by over 1,000 tonnes, which is double the average annual accumulation seen in the last decade, reported the ECB.
“Survey data indicates that about two-thirds of central banks turned to gold for diversification, while 40% aimed to shield against geopolitical uncertainties,” the ECB noted.
When aggregating all foreign assets, they collectively outweigh the euro, with gold comprising 20% and the euro only 16%, the ECB added.
There are hints that euro assets could actually become more profitable starting in April.
Despite rising US yields, the dollar has seen a significant decline against the euro, which is somewhat unusual. This suggests that investor confidence in the dollar’s status as the premier global asset might be wavering.
Such market trends indicate that investors are now seeking a greater risk premium for holding US assets, while also grappling with uncertainties surrounding the sustainability of US debt, especially given the financial maneuvering from Washington.
Moreover, there’s a consistent trend of US companies issuing debts in euros, often referred to as reverse Yankee bonds, with the euro increasing its share last year through the issuance of bonds in foreign currencies.
However, economists caution that the Eurozone lacks critical financial structures necessary to capture significant portions of dollar holdings.
Debts are issued by individual countries, resulting in a fragmented debt market within the bloc, so there aren’t truly liquid, large, or safe assets available.
