Forex- Dollar Falls As China Considers Slowing US Bond Purchases

Forex- Dollar Falls As China Considers Slowing US Bond Purchases

Bitcoin dropped 9.2 percent to $13,517.83 on the Bitstamp exchange, after South Korea's justice minister said a bill was being prepared to ban cryptocurrency trading.

The report also notes that Chinese officials think USA debt is becoming less attractive compared with other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases.

In a statement posted on its website, SAFE said the report's sources might be wrong or that the story could be "fake news". This trend began after the Asian Financial crisis in 1997 when currencies crashed after the Thai government made a decision to no longer peg the local currency to the United States dollar (USD). "The market seems to have been looking for one-sided news to sell the dollar this week".

However it was again more bark than bite, and the Chinese regulator has now soothed market worries saying that it was already diversifying its foreign exchange reserves, and its Treasury holdings are "market driven".

The treasury yields (return on investment) rise when bond prices fall, and so when the markets took a tumble on Wednesday, the yields moved to their highest level since March 15 a year ago, marking a 2.597 per cent return. The VIX implied volatility index, the markets' so-called "fear gauge", hovered just above 10 on Thursday, from as low as 8.92 on January 2.

While it wasn't clear whether the officials' recommendations had been adopted, yields on the benchmark 10-year note spiked to near the highest level since 2014 on the news.

"It could be an intentional leak to warn the Trump Administration that China has some levers to pull in responding to any punitive protectionist measures on trade", said Aidan Yao, senior emerging Asia economist at AXA Investment Managers Asia. "It appears China is quick to touch the Achilles heel of the States", he added.


The article quickly caused a sell-off in U.S. Treasury bonds.

A separate probe into Chinese intellectual property practices may also conclude as early as this month, Axios reported, and could result in tariffs on the country's consumer-electronics exports.

"The dollar was already notably weak ahead of today, despite the fact that USA data remained strong and yields continued to rise", said Boris Schlossberg, managing director of FX strategy at BK Asset Management in NY.

The dollar was flat against the euro, holding below the key level of $1.20 before the publication of the minutes of the last European Central Bank meeting in December, when policymakers held monetary policy unchanged.

The largest currency market move has come from the Japanese yen with the USD/JPY sitting up 0.26% at 117.71, recovering after hitting a low of 111.33 earlier in the session.

The USD also lost ground Vs a basket of major currencies.

China's holding of USA government debt - the world's largest, climbed US$131 billion in the first 10 months of 2017 to US$1.19 trillion, data from the Treasury Department showed. It takes a dramatic change in the fundamental outlook for USA fiscal and monetary policy (think Donald Trump's election victory most recently) or turmoil in riskier assets to really jolt bonds one way or the other.

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