• The U.S. dollar fell to a more than six-week low against the Japanese yen and weakened against a basket of major currencies on Wednesday after a report that China was ready to slow or halt its U.S. Treasury purchases.
The dollar was down 1.13 percent at 111.37 yen, after touching 111.29 yen, its weakest since late November.
• News that Chinese officials were planning to cut or halt purchases of US government bonds triggered a USD sell-off and sent yields sharply higher. The US Dollar Index (spot) bottomed at 91.90. From the lows, it bounced and during the last hours accelerated the recovery. It was trading at 92.25, down just 0.28% for the day.
DXY is at session highs but still far from yesterday’s close. The immediate resistance is seen at 92.40, followed by 92.55 (Dec 10 high) and 92.65 (Dec 9 high). On the flip side, a consolidation below 92.00 would open the doors for a test of January lows that lie at 91.80.
• 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.
• Chinese officials reviewing the country’s vast foreign exchange holdings have recommended slowing or halting purchases of U.S. Treasury bonds amid a less attractive market for them and rising U.S.-China trade tensions, Bloomberg News reported on Wednesday.
China is the largest foreign holder of U.S. government debt, with $1.19 trillion in Treasuries as of October 2017, according to the Treasury Department.
The Chinese officials, who were not named, said the market for U.S. government bonds is becoming less attractive relative to other assets, Bloomberg said. They also cited trade tensions with the United States as a reason to slow Treasury purchases, the report said.
The report sent U.S. Treasury yields to 10-month highs and sent the dollar lower. Economists cautioned, however, that China would not be able to make large changes to the composition of its reserves as it needs them to manage its renminbi exchange rate.
Federal Reserve policymakers reacted coolly to a report on Wednesday that China could curb its massive U.S. debt purchases, pointing out that such rebalancing by countries can be healthy and would not likely disrupt the U.S. central bank’s plan to trim its own bond portfolio.
• Sub-par inflation over the past five years has caused a shortfall in the United States economy versus its potential growth path, St Louis Fed President James Bullard said on Wednesday as he fleshed out a proposal for a more dynamic system of setting price increase goals.
Several policymakers are encouraging the U.S. central bank to review its method for controlling inflation and consider a system that makes up for weak inflation in one year by allowing prices to rise more quickly in future years so that the overall level, over time, stays on a set path.
The Fed currently aims to get annual inflation to a rate of 2 percent.
• U.S. President Donald Trump said on Wednesday after the first intra-Korean talks in over two years that the United States was willing to speak to North Korea “under the right circumstances,” although it was far from clear whether this would pay dividends.
• The U.S. Senate will next month hold a hearing with the country’s top markets regulators to discuss the risks posed by cryptocurrencies such as bitcoin, a person with direct knowledge of the matter told Reuters.
• Crude oil prices jumped on Wednesday and settled near three-year highs after U.S. government data showed a drop in crude inventories and production, even as fuel inventories rose.
U.S. West Texas Intermediate (WTI) crude futures settled at $63.57 a barrel, up 61 cents, or 1 percent, their highest settlement since December of 2014. Earlier in the session, prices hit $63.67, their highest since Dec. 9, 2014.
Brent crude futures settled at $69.20 a barrel, up 38 cents. The session high for the global benchmark was $69.37, highest since May 2015.
• U.S. crude inventories fell 4.9 million barrels last week, more than the 3.9-million decline forecast, but bigger-than-expected builds in gasoline and fuel stocks offset that drawdown, the Energy Information Administration reported. [EIA/S]
Reference: Reuters, FXStreet, Bloomberg
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