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Dollar Whacked by Unexpected News About Future Chinese U.S. Debt Purchases


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The U.S. Dollar was volatile against a basket of currencies on Wednesday as investors reacted negatively to a report that China was ready to slow or halt its purchases of U.S. Treasuries. The dollar posted its biggest one-day drop in nearly eight months against the Japanese Yen.

March U.S. Dollar Index futures settled at 92.07, down 0.190 or -0.21%.

According to reports from Bloomberg News, citing people familiar with the matter, officials reviewing China's foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries.

The report triggered a volatile response in the U.S. Treasury market with U.S. 10-year Treasury yields spiking to a 10-month high.

The USD/JPY was under pressure for a second day at the start of trading on Wednesday due to Tuesday's decision by the Bank of Japan to trim its buying of long-dated Japanese government bonds in market operations.

The move by the BoJ came as a surprise although some traders said it was just a technical tweak in line with the central bank's policies to date. However, traders may have overreacted to the news because they thought it meant the Japanese central bank could be poised to begin winding down its stimulus.

In other Forex news, the USD/CAD rose as worries of a U.S. NAFTA withdrawal tempered bets that the Bank of Canada will raise interest rates next week.

According to CNBC, Canada is increasingly convinced that U.S. President Donald Trump will soon announce that the United States intends to pull out of the North American Free Trade Agreement, two government sources said.

U.S. Equity Markets

U.S. stocks fell on Wednesday as investors raised concerns over the possibility of China slowing or halting its Treasury bond purchases and the U.S. withdrawing from NAFTA.

The S&P 500 Index and NASDAQ Composite snapped their six-day winning streak while closing lower for the first time this year. The Dow Jones Industrial Average fell for a second day.

Gold

Gold futures surged on Wednesday, hitting its highest level since September 15 as investors reacted to a plunge in the U.S. Dollar. Gold traded higher, despite the fact that yields across the curve moved higher. Lower demand for higher-risk assets also helped support gold prices . However, the rally may have been limited due to the steady rise in yields.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied on Wednesday, posting their highest closing levels since December 2014 and closing within striking distance of prices last seen on November 28, 2014, the day after OPEC's decision to cut production, trim the global supply and stabilize prices. The catalyst behind the surge was another weekly decline in crude oil supply.

This article was originally posted on FX Empire

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This article appears in: Investing , Commodities , Oil , US Markets , Gold
Referenced Symbols: QQQ


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