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USD Talking Points:

- Wednesday’s jump in US Treasury yields and a consequent fall in the Dollar were reversed Thursday as China dismissed a report that it may cut or even halt its purchases of US Treasuries.

- Concerns about the beginning of a longer-term bear market in the USD, Treasuries and stocks have therefore receded.

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USD Back in Favor

The US Dollar has steadied and yields on US Treasury notes and bonds are falling in Europe Thursday after China dismissed a report that it is cutting or even ending completely its purchases of US Government debt. The news could quote the wrong source of information, or may be fake news,” the State Administration of Foreign Exchange (SAFE) said in a statement.

The earlier report from the Bloomberg news agency prompted fears of a new bear market in the USD, US Treasury bond prices and stocks but these receded as China said it is merely diversifying its foreign exchange reserves to safeguard the overall value of its assets and preserve and increase their value.

That ended the fall in the USD, which was hit Wednesday by a move into haven currencies such as the Japanese Yen and Swiss Franc.

USD/JPY Price Chart 5’ Timeframe (January 10-11, 2018)

USD Steadies, US Treasury Yields Fall as China Denies Policy Change

Chart by IG

US Treasuries Rally

Yields on US Treasury notes and bonds rose sharply Wednesday as the Bloomberg report increased fears that the current bull market in global stocks and sovereign bonds is running out of steam and that prices are overdue a correction. However, China’s statement helped soothe frayed nerves, sending Treasury yields lower.

US 10-Year Treasury Note Yield Chart 15’ Timeframe (January 10-11, 2018)

USD Steadies, US Treasury Yields Fall as China Denies Policy Change

Fears of a new bear market in government bonds were also alleviated by a Bank of Japan decision to maintain its bond purchases; a cut in its bond buying earlier this week had raised concerns about central banks worldwide reducing their monetary stimulus programs.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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