Monday, January 15, 2018

Double Whammy Trouble for the US Dollar

The US dollar has fallen to its lowest level against the Chinese yuan in the last two-years.

The US dollar against the Chinese yuan.

At the same time, Japanese purchases of US Treasury securities are collapsing.

The Nikkei reports that Japanese investors' net purchases of mid- to long-term foreign bonds (mostly Treasury securities) nosedived 94.6% on the year to 1.1 trillion yen ($9.9 billion) in 2017, Japan's Finance Ministry said Friday. Yes, a decline of 94.6%. It was the first annual decline in four years.

These are just two data points but they are significant in suggesting a major shift is underway from the US dollar. And given that Trump has shifted from tax financing to additional debt financing, things could get pretty vicious for the dollar on foreign exchange markets. This could result in a kind of tiger by the tail situation with interest rates climbing which results in the Treasury requiring more funding thus pushing rates even higher. The climbing rates, anticipated overseas, will result in even less Treasury buying thus resulting in a continued decline in the dollar and even more advances in interest rates.


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