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The US dollar fell against its major currencies on Wednesday after an unconfirmed report that China is considering cutting or stopping the acquisition of US Treasury funds. Market participants said the news helped exacerbate turmoil in the US stock market, such as government bonds and the dollar. The drop came a day after the Bank of Japan cut its purchases of government bonds.
The US dollar index, a measure of the USD against six other major currencies, fell 0.3% to trade at 92.274 points, its lowest level since September. Meanwhile, the WSJ Dollar Index, which measures the strength of the dollar versus a basket of 16 currencies, fell 0.3%, to 85.73 points. The greenback was down 1.04% at 111.49, while EUR / USD rose 0.1843%, with the pair trading at $1.1961.
In China, the world’s second largest economy, economic officials are reviewing foreign exchange holdings. They will decide if they will reduce or stop their purchases of US Treasury funds and other assets. The US asset markets, especially the bonds, have reportedly become less attractive and trade tensions with the US may provide a reason for a slowdown or a halt in US debt purchases. It is unclear whether China intends to pursue a bond withdrawal strategy. China has historically been among the largest holders of US debt.
Market strategists and analysts claimed that the news had a significant impact on the demand for USD. The China report came a day after the Japanese government cut back on government bonds, with maturities by $ 1.7 billion. This has raised concerns that the Bank of Japan has initially started to reduce its soft money policies, followed by the ECB. However, some analysts cautioned that the move was more of a technical initiative and less than a fundamental shift in the bank’s policy.
As a direct reaction, investors sold Treasury bonds and US-denominated assets. Analysts say that the expectations of the dollar’s rise in 2018 may face a falls in economic growth, corporate tax cuts in the United States and other incentive measures expected.
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