‘The Sell America Trade’: Who’s behind the sinking of the U.S. dollar.
The U.S. dollar is down nearly 9%, year to date. Yields on Treasuries have stayed high even though the stock market has gone down—the opposite of what investors normally expect. Some are blaming Japan and China for selling U.S. bonds, which would hurt the dollar. Others believe hedge funds unwinding leveraged positions in bonds may be to blame. But analysts and economists tell Fortune that as long as the White House continues to generate economic uncertainty, everyone is going to flee the dollar.
The value of the U.S. dollar ticked up yesterday after President Trump did a U-turn and said he had no intention of firing Jerome Powell, chair of the Federal Reserve. It was a rare piece of good news for the world’s “reserve currency,” whose value has fallen 9% year-to-date against the DXY index of foreign currencies.
That raises a question: Who is selling the dollar—or selling assets that drive down the dollar—and why?
Initial suspicions targeted Japan and China. After all, they are both seeing their export markets hurt by Trump’s trade war, and they are the first and second largest foreign holders of U.S. Treasuries. Perhaps those countries were trying to send a message to Trump: Remember, we can hurt you too!
However, there is little to no evidence that either country is deliberately tanking the dollar.
And, perhaps surprisingly, there isn’t a great deal of evidence that hedge funds with liquidity issues were suddenly forced to unwind levered bets on U.S. bonds, forcing the recent selloff that dragged the dollar down with it, these sources say.
Source: Fortune