Sovereign Funds Cut Exposure to US Dollar: FT

Some of the world's largest sovereign wealth funds are seeking to scale back their exposure to the U.S. dollar in a sign of global concern about the currency, the Financial Times reported on its online site.


The report, published during the Asian day on Thursday, said one large sovereign fund in the Gulf had cut its dollar-denominated holdings from more than 80 percent a year ago to less than 60 percent, but gave no source.

The FT also said China's State Administration of Foreign Exchange (SAFE) had been looking to strike deals with private equity firms in Europe as a part of a plan to reduce its U.S. dollar holdings, citing people familiar with the matter.

The shift at China's SAFE was significant because it manages all of the country's $1.8 trillion in foreign currency reserves.

Traders said the U.S. dollar eased a little on Thursday morning as the report circulated, though investors have long suspected that sovereign funds would be inclined to trim their holdings given the long fall in the currency.

"That's something that's been happening over the course of time, that there's been a supply of dollars on any given rally," said Rick Lloyd, head of G10 currency trading at ABN AMRO in Singapore. "The dollar just seems to be getting pushed around in the backwater of flows in other markets at the moment," he added.

The dollar had bounced on Wednesday after U.S. financial shares staged a big rally and a high inflation reading seemed to rule out any further cut in U.S. interest rates.

On Thursday, the euro was at $1.5838, up from $1.5817 late in New York but off the week's record high of $1.6038.

The FT report said SAFE has been holding talks with Europe-based private equity firms about putting billions of dollars into their latest funds, precisely because these funds are not dollar-denominated.

By allocating money to Europe-based private equity firms, SAFE could diversify away from the dollar, at least at the margin, without unnerving the currency markets and driving the dollar down in a disorderly manner, said the FT.

In addition, SAFE is encouraging the private equity firms with which it has relationships to make investments in natural resources companies in markets outside the United States, in part to hedge its exposure to the dollar, said the report.