Thursday, November 09, 2006

Dollar Fell on China Reserves Diversification Announcement

The dollar fell across the board after Chinese central bank announced that it was planning to diversify its foreign exchange reserves. The dollar reached a two-month low at 1.2847 versus the euro.

Chinese central bank governor Zhou Xiaochuan said China was considering lots of instruments to diversify its $1 trillion of reserves. Besides China, other countries, such as Swiss and Russia, announced they would diversify reserves away from the dollar before.

In the early morning session, the dollar gained slightly on narrowed trade deficits and dropped back on weaker-than-expected consumer sentiment. U.S. trade deficit narrowed from 69.9 billion to 64.8 billion September, better than a forecast of 65.7 billion. Weekly jobless claims fell from 327,000 to 308,000, better than the forecast of 315,000. University of Michigan consumer sentiment fell from 93.6 to 92.3 in November, below the expectations of a 93.4 reading.


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