Foreign Reserves Held By the Fed

[pete richardson]

Unwanted $USDs accumulated by foreigners as a result of trade with the US are exchanged at local foreign banks. They find their way to the local
foreign central bank. They may hold some out and by Treasuries with the remainder. When the dollar is perceived as going up, fewer dollars are exchanged and foreign central banks have less to invest in Treasuries. When the $USD goes down in value, foreign central banks wind up with more $ to invest. A decline in Fed custody holdings is a forecast that the dollar will rise. So too, a sudden surge in custody holdings means the dollar is expected to fall.

A DECLINE IN THOSE CUSTODY HOLDINGS WHEN THE $ IS RISING CAN BE AN OMINOUS SIGN IF IT REFLECTS DECLINES IN THE VOLUME OF TRADE...If trade is growing, a decline in custody holdings is most likely a
harmless event