Central banks tapping reserves but reserves are dwindling

According to Dow Jones, it is not just intervention that is draining FX reserves in Asia, its the drop of the euro. Remember all that reserve diversification that helped drive EUR/USD to 1.60? It is biting central banks in the backside now…

The drain in Asia’s foreign exchange reserves accelerated in October due to hefty sales of U.S. dollars to support battered local currencies and the depreciation of assets denominated in euros and sterling.

The fall in Asia’s reserves still leaves most countries in the region with a comfortable cushion at a time of ongoing global financial and economic stress but may start to raise questions about how far reserves can fall before the trend becomes worrisome.

It could also mean that Asian nations will resist pressure at this weekend’s Group of 20 economic crisis meeting in Washington to use its reserves firepower to help steady global markets.