Strategist: US Treasury Suspected of Intervening in Euro to Yen to Prevent Dollar Weakness

August 3rd. A strategist suggested that the U.S. Treasury may use the Euro instead of the Dollar to fund its Yen purchasing program to avoid currency depreciation and to maintain the credibility of its strong dollar policy.

Two sources revealed that the New York Federal Reserve Bank requested at least two large U.S. banks last Friday to inquire about the Yen-to-Euro exchange rate. "The U.S. most likely does not want to be seen as selling off the Dollar," said David Forrest, Senior Strategist at Nanon Credit Bank in Singapore. "The U.S. is committed to a strong dollar policy, and they do not want to be perceived as trying to gain a competitive advantage by weakening their domestic currency, as this would go against the G20 consensus on exchange rate policies. If the U.S. Treasury were to sell off the Dollar, it would not look good from an optics perspective, hence the choice to use the Euro," said Jason Wang, Currency Strategist at New Zealand Bank in Wellington.

He pointed out, "The end result is essentially the same because the funds will still need to be reallocated back to the Euro at some point in the future, which could mean that the U.S. will eventually sell off the Dollar; it's just a more opaque way of doing it."