Since the market started talking about currency wars a few weeks ago, bank research analysts have been busy compiling reports on possible outcomes. From those that I’ve read so far, even a prolonged and nasty spat between China and the US would not have the catastrophic consequences for the USD that many had thought likely. As these reports start to circulate, the USD has been regaining some of the ground which was lost over the last few weeks.
China has been steadily reducing its overall exposure to USD assets over the last two years and latest reports suggest that a little over 50% is now held in the US. That is down from the almost 65% of recent years. Even if China were to sell 10% of its US Treasuries on the open market, that would amount to 1 weeks worth of new issuance which is certainly significant but hardly earth moving.
Now that the market is getting its head around the actual figures involved, the panic is starting to subside and we may see some calm heads return.
Good luck today.
