According to Standard Chartered, global reserve managers are adopting a countercyclical approach to the US dollar, buying when it weakens and selling when it strengthens. This strategy is based on an analysis of IMF data, which shows that dollar reserves and the Bloomberg Dollar Index have moved in opposite directions in 17 of the past 20 quarters. This suggests that central banks are using currency fluctuations to rebalance their portfolios, rather than following market trends.
In the second quarter of 2025, for example, the US dollar fell by 6.6%, but official reserves actually rose by $50 billion. This is likely because central banks avoided adding to the selling pressure, instead choosing to buy the dollar at a weaker price. In contrast, in the fourth quarter of 2024, the dollar gained 7.1%, and reserves dropped by $154 billion as managers took profits on the strength of the dollar.
This pattern of behavior reflects a cautious and opportunistic approach by central banks, according to Standard Chartered. The bank notes that official institutions remain important stabilizing forces in global currency markets, and their actions can help to mitigate market volatility. By buying the dollar when it is weak and selling when it is strong, central banks can help to smooth out currency fluctuations and maintain stability in the market.
Overall, the data suggests that central banks are taking a proactive and strategic approach to managing their dollar reserves, rather than simply following market trends. This approach can help to reduce the risk of large losses due to currency fluctuations, and can also provide opportunities for profit when the dollar is strong. As a result, global reserve managers are playing an important role in maintaining stability in the global currency market.