On Wednesday, the U.S. dollar slumped after a report that China was ready to slow or even halt its U.S. treasury purchases, leaving greenback to record its largest single-day fall versus the Japanese yen in just about eight months.
Officials that are analyzing China’s foreign-exchange holdings have suggested the slowing or halting purchases of U.S. Treasuries, according to Bloomberg News. Prior to the news report, the greenback was at a disadvantage from the Bank of Japan’s move to lessen the amount of purchases of long-dated government bonds earlier in the week echoed through the currency markets.
The dollar’s lost against the Japanese yen, dropping over 1.2 percent to a six-week low of 111.3, its weakest since the end of November.
“If the [largest] foreign holder of U.S. Treasuries were to suddenly stop, that would cause a problem,” said chief macro strategist, Derek Halpenny, referring to China. “The dollar needs to weaken to a level that attracts buyers back to the U.S.”
Against a basket of currencies, the dollar lost 0.6 percent, its largest fall in a month. Wednesday’s weakening against the yen trailed Tuesday’s loss of 0.5 percent when Japan’s central bank decreased the number of its long-dated government bond purchases in its regular buying operations.
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The dollar had a nice start this year after last year’s nearly 10 percent loss against some major currencies as the economic outlook in other parts of the world, mainly Europe, improved. The outlook of a major boost to U.S. growth from U.S. tax overhaul started to fade also contributed to its decline.
The dollar’s weakness also highlights its vulnerability to the actions of other central bank of normalizing monetary policy, an aspect from last year that has continued to weigh on the dollar in the opening weeks of 2018.
Currently, two U.S. interest rate increase are priced in for this year, but the market has only freshly begun to price in the tightening moves of other central banks.