Based on the latest U.S. Treasury flows data, it may be time to ditch the textbook theory that says less monetary stimulus means a stronger currency – at least for now.
The problem may just be that the theory doesn’t fully account for the situation when your largest creditors – and they are very large – are trying to beat you to the market.
The Federal Reserve first hinted in May it would start reducing its bond purchase programme because the U.S. economy is recovering and so is the job market.
Predictably, that news sent Treasury yields higher, with the dollar in tow. And analysts began pencilling in more gains for the greenback when the central bank actually begins scaling back.
But that move also spooked China and Japan – the largest foreign holders of U.S. debt.