Dollar dented by report China may halt bond buys

A broker looks at a graph on his computer screen on the dealing floor at ICAP in London

Dollar dented by report China may halt bond buys

The Treasury is also due to finish off this week's series of long-term securities auctions with the sale of $12 billion worth of thirty-year bonds.

Interest rates had already been rising to start 2018, as investors begin to price in prospects for faster US growth, more interest rate hikes from the Federal Reserve and rising inflation pressures, in part due to rising wages as the job market tightens further. Rising Treasury yields can pressure prices for gold, but the dollar's slide helped gold shrug off the impact.

"Markets will be higher at the end of next year than they are right now, in my opinion, but it's going to be a little volatile getting there", Jonathan Slone, chief executive officer of CLSA in Hong Kong, said on Bloomberg TV.

"If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant", says Craig Erlam, senior market strategist at OANDA, a currency trading firm with offices in NY. -China trade tensions, Bloomberg News reported on Wednesday.

Some investors saw a reduction of bond purchases by the Bank of Japan this week as a potential indication of this.

United States inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening.

St. Louis Fed bank President James Bullard and head of the New York Fed Bill Dudley are among central bankers scheduled to speak.

The Stoxx Europe 600 Index sank 0.3% as of 8:24am London time, the first retreat in more than a week and the largest decrease in three weeks.

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MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 percent after six straight days of gains that had taken it within a stone's throw of the record high touched in November 2007. USA gold futures GCv1 for February delivery settled up $5.60, or 0.4 percent, at $1,319.30 per ounce.

The Bloomberg Dollar Spot Index declined 0.2%.

For U.S. policymakers, there's an extra layer of caution: The Republican Congress and the Trump administration just approved a bill laden with tax cuts that are estimated to increase federal deficits by about $1 trillion over the next decade.

European shares fell, with most sectors except financials in the red as concerns grew over the direction of the bond market.

"All of last year there was this fantastic correlation between USA 10-year yields and dollar-yen and people put on what is known as pairs trades", said Greg Anderson, global head of FX strategy at BMO Capital Markets in NY. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.550 percent.

The Japanese yen strengthened 0.40 percent versus the greenback at 112.64 per dollar, while sterling was last trading at $1.3538, down 0.21 percent on the day. Brent crude ended the session up $1.04, or 1.5 percent, at $68.82.

West Texas Intermediate crude rose 0.8 percent to $63.45 a barrel, up about 5 percent since the year began. Contributions of 200 words or more will be considered for publication.

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