Euro woes won't hurt its global reserve currency status: Nomura

Question marks over the euro's prospects as a sought-after global reserve currency are premature even though its presence in central bank's reserves is likely to drop to historical lows, Nomura said on Tuesday. A year-long slide in the euro and a recent move below zero in many euro zone government bond yields has seen central banks and sovereign wealth funds trim the amount of euros in their portfolios, raising doubts over the euro's status as the most sought-after currency after the US dollar.
Latest International Monetary Fund data show the euro's presence in reserves fell to 22.2 percent, the lowest since 2002. Many banks expect that share to fall below 20 percent and Nomura said it could drop to 14 percent, below the historical trough of 17 percent seen in 1999. A steady decline in the euro's value against the dollar will account for much of that, although outright selling by central banks worldwide could run into more than $100 billion - a significant flow out of the single currency, analysts say.
But Nomura said it was unlikely that all central banks, especially those in Europe - such as the Danish and Swiss central banks - would join forces in the sell-off and the euro was unlikely to drop below parity against the dollar. "Certain central banks, including EU member countries and countries in EMEA with close trade links to the euro zone, are likely to continue to hold substantial amounts of euros in their portfolios," Nomura's global head of FX strategy, Jens Nordvig said.
"If there is a limit to how much further the euro share of FX reserves can fall, there may also be a limit to how long central bank flow will be a major driver of the euro to the downside. This is one reason why it may be hard for euro/dollar to break parity in short order." Nomura said that while negative yields had raised doubts over the euro's status as a reserve currency, its position would not be under threat, especially since China's yuan was a not a realistic alternative. Momentum to make the yuan a global reserve currency has been building in recent months after China sent a strong message to the IMF in March.