Dollar Whacked by Unexpected News About Future Chinese US Debt Purchases

Treasury Bond ETFs Weakening on Foreign Demand Concerns

Fixed-IncomeTreasury Bond ETFs Weakening on Foreign Demand ConcernsByMax Chen

U.S. Treasury yields fell after China disputed a report that its government officials had recommended the country slow or halt its purchases of the U.S. bonds.

The, which measures the greenback's strength against a trade-weighted basket of six major currencies, 0.23% to 92.02 by 11:56 AM ET (16:56 GMT).

Benchmark 10-year note US10YT=RR yields were last down to 2.564 percent, after peaking at 2.597 percent, the highest since March 15.

The decision is based on the fact that other investments may offer better returns, but also on the mounting trade tensions between Beijing and Washington.

But others said short sellers were squeezed out by the sudden downshift in yields prompted them to buy back, or "covering", the securities they had borrowed, juicing the late day rally.

The dollar posted its biggest one-day drop in almost eight months against the Japanese Yen.

United States investors were spooked by a Bloomberg report, based off an anonymous leak, that China may slow down - or even stop - its buying of USA government bonds.

China's foreign exchange reserves, the world's largest, rose US$129.4 billion in 2017 to US$3.14 trillion, as tight regulations and a strong yuan continued to discourage capital outflows, data from China's central bank showed.

The dollar rose against its Canadian counterpart and and Mexico's peso after a Reuters report said Canada increasingly believes that U.S. President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty.

It is possible that comments from the unnamed sources cited by Bloomberg and other outlets are connected to an ongoing trade dispute between the USA and China. US equities declined.

"This has been long expected but there was more formality in the minutes around how the bank will manage the forward guidance process as they exit unconventional policy", Schamotta said.

China has the world's largest currency reserves, approximately $US3 trillion.

USA inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening.

The bond market has had an early alarm call in 2018.

Analysts also said rising oil prices could have sparked the rise in long-term yields this week, as it could fan inflation further down the road and force central banks to quicken the pace of interest rate rises.

In the past two weeks, two of China's star companies, Ant Financial and Huawei, have met setbacks in the U.S. market where their investments were being obstructed, triggering a wave of mainland Chinese state media criticisms against the USA government for its "protectionism".

"We don't see a material impact on the Dollars, and our view is for further USD depreciation as the global economy picks up and "other" central banks look toward tightening their monetary policies", Grace and Haddad say. The 10-year breakeven rate, a proxy for the annual inflation rate the market expects for the next decade, climbed Tuesday to about 2.05 percent, the highest in 10 months.

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