Forex- Dollar Falls As China Considers Slowing US Bond Purchases

Lloyd Doyle
January 13, 2018

The Dow jumped 205.60 points or 0.8% to 25,574.73, the Nasdaq advanced 58.21 points or 0.8% to 7,211.78 and the S&P 500 climbed 19.33 points or 0.7% to 2,767.56.

People familiar with the matter told Bloomberg the officials believe the market for us government bonds is becoming less attractive relative to other assets.

China's decisions on foreign exchange holdings, as well as its investments in US Treasuries, are market-driven, he explained.

Market News reported Thursday that China's restated objective of diversifying the makeup of its foreign exchange stockpiles can be seen as an admission that it is cutting back on U.S. Treasury purchases, citing an unnamed senior official at the People's Bank of China.

"As we look at China now, it's putting emphasis on state-owned enterprises on the involvement of the party, the political apparatus into the business sectors, heavy subsidies continuing, which distorts the allocation of capital", Under Secretary for International Affairs David Malpass said to a group of reporters in Brussels.

Selling pressure waned over the course of the session, however, as traders may have been concerned about missing out on any further upside.

The short-term bond benchmark crossed 2% Friday for the first time since 2008, and the higher income now provided by short-term Treasuries could lure more investors to the market after years of depressed rates, reports Ben Eisen for the Wall Street Journal.

The Labor Department said import prices inched up by 0.1 percent in December after climbing by an upwardly revised 0.8 percent in November.

A Bloomberg News story published Wednesday lifted yields on the 10-year government bond to a 10-month high as investors anxious about large buyers reducing their participation in the market.

The report also showed an unexpected decrease in export prices, which edged down by 0.1 percent in December after rising by 0.5 percent in November.

Meanwhile, the S&P/ASX 200 index traded 0.10 percent lower at 6,023.5 by 04:40 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 73.23 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

Considerable weakness was also visible among electronic storage stocks, as reflected by the 1.3 percent drop by the NYSE Arca Disk Drive Index. The NYSE Arca Airline Index surged up by 3.9% to its best closing level in almost six months.

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