China pulls plug on the USD
By Vincent-Frédéric Mivelaz
The second-biggest buyer of US sovereign debt, China, is looking to reduce or even halt its enthusiastic purchase of American treasury bills. The decision is clearly political, and it warns investors to be ever-so-aware of the US Federal Reserve’s monetary policy. The net effect could be a lower greenback.
There are multiple reasons for China’s move: 1) especially since the recent tensions in North Korea, Chinese-American trade disagreements (particularly in agriculture and aviation) have intensified; 2) roughly 30% of China’s foreign exchange is in dollars – diversification is common sense; and 3) fixed-income investors are looking for alternatives to bubbled bonds, which will erode prices.