There is no smoke without fire. When Deutsche Bank said that Europe could use the weapons of capital by abandoning American securities because of Greenland, it was hard to believe. However, Beijing’s call for Chinese banks not to buy U.S. Treasury bonds has brought back previous fears to the market. The greenback dropped sharply, and the EURUSD recorded its best daily performance since January 27. Ever since the day when Donald Trump praised the falling dollar.
You will not be satisfied with monetary policy alone with a Republican at the helm of the country. For decades, Forex exchange rates have been determined by central bank decisions based on incoming data. Donald Trump has turned everything upside down. Now it is necessary to take into account such factors as investor confidence in the dollar and all American assets in general. And it has been pretty shaken due to the tariff policy of the White House and the risks of the Fed losing its independence.
If earlier the increase in treasury bond yields indicated an increase in the attractiveness of American securities, which ensured capital inflows to the United States and the strengthening of the dollar, then in 2025-2026 everything changed. Treasury rates are rising because Brazil, India, and finally China, which are dissatisfied with the policy of the White House, are actively getting rid of them.
The Celestial Empire started doing this a long time ago. If in 2013 it was the largest holder of US Treasury bonds in the world with reserves of $1.32 trillion, then by 2026 it was surpassed by Japan and Britain. The value of reserves decreased to $683 billion. And even though their size in Belgium, where we have investment accounts, has quadrupled since 2017 to $481 billion, the total figure is far from the maximum.
At the very beginning of Donald Trump’s first trade war with Beijing in 2017, there was also a simultaneous rally in treasury yields and a weakening of the US dollar. Back then, there were similar rumors on Forex about the use of capital weapons by China.
History repeats itself. Chinese banks, which authorities have warned against buying U.S. Treasury bonds, own about $298 billion worth of them. If they start getting rid of American securities, the US dollar risks serious damage. According to FOMC member Stephen Miran, only a massive collapse in the USD index can accelerate inflation in the United States. Prices are not a problem so far. The Fed can cut rates with a clear conscience.
