In the first quarter of 2025, COFER data showed that reserve managers sold a large amount of Japanese yen (JPY) and Australian dollar (AUD). On the other hand, Swiss franc (CHF) holdings increased significantly. This suggests that reserve managers still see the CHF as a safe option amid global uncertainties. Global foreign exchange reserves continued to keep a steady portion of US dollars (USD), highlighting its strong role in reserve portfolios. However, the notable drop in JPY and AUD holdings indicates ongoing outflows. The outlook for the Euro (EUR) is mixed. While there is still some caution among reserve managers, a recent survey indicates growing optimism regarding the EUR. This could lead to increased inflows in the future. Although there is some hesitation towards the Euro, this potential positive shift could help strengthen its role in global reserves. The consistent preference for USD, along with the changes in JPY, AUD, and CHF holdings, reflects the current trends in reserve management. The article discusses how institutions managing currency reserves made significant changes early in 2025. They cut back on Japanese yen and Australian dollar holdings while increasing their investments in Swiss franc. This suggests that these institutions are becoming more cautious about currencies that might be more affected by economic changes or unpredictable policies. At the same time, they are favoring currencies that tend to retain value during uncertain times. The dollar remains the top choice as reserve managers stay committed to it despite changes elsewhere. The outlook for the Euro isn’t entirely negative either. There is still some hesitation, but early survey data shows signs of improving sentiment. If this optimism translates into action, we could see its share in global reserves rise again. For now, however, the focus is on stability rather than experimentation. In the coming weeks, those trading interest rate products or betting on currency changes will need to adjust their risk expectations immediately. We must adapt to flow changes and positioning. The outflows from yen and AUD indicate lower demand for those currencies from big conservative investors. This decreases pricing support and makes them more vulnerable during volatile periods. We might consider updating our hedging strategies, perhaps using more aggressive options for scenarios where interest rate changes or risk sentiments shift sharply. With the Swiss franc gaining popularity, we should pay attention to demand-driven rallies that aren’t solely linked to Swiss economic data. Price movements can occasionally appear disconnected from interest rate differences. Historically, these shifts have indicated changes in global protective flows. The premium pricing of the CHF may continue into the second quarter, so we should be cautious about betting against this strength. Regarding the dollar, its steady role in reserve portfolios means we should be careful with strategies that short the dollar based on mean reversion alone. Even if the Fed becomes less aggressive later this year, just betting against the dollar too early could backfire without significant support. Any pullback will likely require a strong narrative catalyst, not just signs of lower inflation or dovish speeches. There may be better opportunities with options markets compared to outright spot positions. As for the Euro, if sentiment is indeed turning positive, the volatility pricing in EUR-crosses might not accurately reflect all possible outcomes. We could see underappreciated tightening in near-term volatility if repositioning occurs over the summer. For now, it’s a time to wait and see, but we shouldn’t overlook the idea that risks around the Euro may have lessened, opening possibilities for calendar trades or selective bullish positions in longer time frames. Overall, we are witnessing a shift in behavior from the most conservative financial players, which often influences others. This shift should guide our own risk placements, especially in areas where macro trends and structural flows intersect.

here to set up a live account on VT Markets now