The dollar slumped on Wednesday following a report that China may slow or halt its purchases of US government bonds, with Wall Street stocks also opening lower.
Bloomberg News reported that officials reviewing China s foreign-exchange holdings have recommended slowing or halting purchases of US Treasuries, citing people familiar with the matter.
The dollar tumbled against the euro, which shot up above $1.20, and against the yen.
“If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of US debt,” said Craig Erlam, senior market analyst at currency trading firm OANDA.
Fewer Chinese purchases of US bonds would likely see interest rates paid to attract buyers climb higher, and thus the US Federal Reserve would have less need to hike rights.
“The tightening effect of such measures would likely have an impact on how many times the Federal Reserve raises interest rates this year, which is why we ve seen a corresponding drop in the dollar,” said