Reserve growth is slowing, but it’s not helping the dollar
One of the anticipated transmission mechanisms for dollar strength arising from EM weakness (and associated risk aversion) is through the reserve angle. In short, flat or slower reserve accumulation leaves fewer dollars available to recycle; if outright
outflows are seen and EM central banks need to draw down reserves, the subsequent portfolio rebalancing should also help the greenback. It appears neither channel is working at present, though we suspect central bank activity is not the direct driver.
Read the full report: UBS