Strategists said the US Treasury may fund a yen-buying plan with euros instead of dollars, a structure they said could help avoid the appearance of weakening the US currency and calling Washington’s strong-dollar policy into question. The view followed comments from two people familiar with the matter, who said the Federal Reserve Bank of New York last Friday asked at least two major US banks to check yen-euro exchange rates. David Forrester, a senior strategist at Credit Agricole CIB in Singapore, said the United States likely does not want markets to see it selling dollars. He added that Washington maintains a strong-dollar policy and would not want to be seen seeking competitive advantage through a weaker domestic currency, which he said would run against the Group of 20 consensus on foreign-exchange policy. Jason Wong, a currency strategist at BNZ in Wellington, said direct dollar sales by the Treasury would look bad from an image standpoint, making euro funding a more acceptable route. He added that the economic effect would ultimately be similar because funds would at some stage need to be reallocated back into euros, which could still imply eventual dollar selling, only in a less transparent way.
Strategists said the US Treasury may use euros rather than dollars to finance a yen-buying plan, a move they said could avoid weakening the domestic currency and keep its strong-dollar policy from being questioned.
Two people familiar with the matter said the Federal Reserve Bank of New York last Friday asked at least two large US banks to check yen-euro exchange rates.
"The US very likely does not want to be seen selling dollars," said David Forrester, senior strategist at Credit Agricole CIB in Singapore.
He said the United States maintains a strong-dollar policy and does not want to be viewed as trying to gain a competitive advantage by weakening its own currency, because that would run counter to the Group of 20 consensus on foreign-exchange policy.
"If the US Treasury sells dollars, it does not look good from an optics perspective, so using euros becomes the choice," said Jason Wong, currency strategist at BNZ in Wellington.
He added that the end result would be much the same, because the funds would still need to be reallocated back into euros at some stage in the future. That could mean the United States would still end up selling dollars, but in a less transparent way.
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