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Fed did not intervene in FX market in Q3: NY Fed

12/11/2009 - 22:38
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By Wanfeng Zhou

NEW YORK (Reuters) - U.S. monetary authorities did not intervene in the foreign exchange markets in the third quarter as the dollar fell broadly against major and emerging market currencies, the Federal Reserve Bank of New York said.

The dollar's trade-weighted exchange value fell 4.4 percent from July to September, as measured by the Federal Reserve Board's major currencies index, according to the quarterly report published on Thursday.

During the third quarter, the dollar dropped 4.1 percent against the euro and 6.9 percent against the yen.

Optimism about the global economy prompted investors to move capital away from the United States in favor of other countries "considered relatively well positioned" to benefit the anticipated recovery, the report said.

"These developments primarily reflected a reassessment of relative growth prospects across economies," the Fed said.

The continued improvement in risk appetite and global financial markets also led investors to further unwind safe-haven flows, which pressured the dollar.

The New York Fed said the United States did not intervene.

The current value of the U.S. Treasury's Exchange Stabilization Fund foreign-currency-denominated assets totaled $25.9 billion.

The Federal Reserve System Open Market Account holdings of foreign-currency-denominated assets stood at $83.1 billion.

EMERGING MARKET INTERVENTION

The report was similar to those of previous quarters when U.S. monetary authorities chose not to intervene in foreign exchange markets.

In contrast, dealers reported increased intervention in the third quarter by emerging market central banks seeking to stem rises in local currencies, the report said. This led to a renewed accumulation of dollar reserves in these countries.

For example, the central banks of Brazil, Mexico, India, and Korea reported reserve balances increasing between $2 billion and $23 billion, according to the report.

Market participants also reported some interest among many reserve managers of emerging market central banks in selling the dollar against other major currencies, particularly the euro and pound.

The report said most dealers interpreted this as routine reserve rebalancing activity, but some suggested the dollar selling weighed on broader sentiment toward the currency.

(Editing by Andrew Hay)

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