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US Dollar Struggles as China’s Treasury Guidance Raises Fresh Demand Concerns
Moneylife Digital Team 10 February 2026
Economy & Nation
The US dollar struggled to regain its footing on Tuesday, with the dollar index hovering below the 97.00 mark as fresh concerns emerged about future foreign demand for US assets after China quietly signalled caution on treasury holdings.
 
The dollar index (DXY), which tracks the US dollar against a basket of six major currencies, was last trading around 96.80 in Asian hours, extending its subdued run into a third session. The mood around the dollar remains fragile, with traders wary ahead of a packed US data calendar that includes retail sales, delayed employment figures and key inflation readings later this week.
 
 
Pressure on the currency intensified after a Bloomberg report revealed that Chinese regulators have verbally advised domestic financial institutions to rein in their exposure to US treasuries, citing concentration risks and heightened market volatility. Officials urged banks to limit fresh purchases and asked those with heavier exposure to gradually pare positions, according to people quoted in the report. The guidance does not apply to China’s official state holdings.
 
While the move was framed as risk diversification rather than a judgement on US creditworthiness, markets were quick to read it as another signal that the dollar’s long-standing safe-haven appeal is being quietly reassessed. Some Chinese banks have already begun trimming exposure, Bloomberg reported, adding to the headwinds facing an already soft dollar.
 
Chinese banks held about US$298bn (billion) in dollar-denominated bonds as of September, according to data from the state administration of foreign exchange. 
 
At the sovereign level, China’s official treasury holdings have been shrinking for more than a decade and now stand around US$683bn, the lowest since 2008. Once the largest foreign holder of US debt, China has slipped to third place behind Japan and UK.
 
What has caught traders’ attention is not the scale of the shift, but the messaging. Chinese authorities have rarely, if ever, nudged domestic banks to curb treasury exposure, even informally. That alone marks a subtle but meaningful change in how the dollar is perceived, particularly at a time when policy uncertainty in the US is already feeding volatility.
 
Beyond China, broader market dynamics are also weighing on the greenback. Improving risk sentiment, coupled with expectations that the US Federal Reserve (Fed) is nearing the start of an easing cycle, has reduced demand for defensive dollar positions. 
 
Markets widely expect rates to be held steady in March, with the first cut priced in for June and a possible follow-up around September.
 
US inflation expectations have also cooled. Median one-year-ahead inflation expectations eased to 3.1% in January from 3.4% in December, the lowest level in six months. Longer-term expectations were unchanged, reinforcing the view that price pressures are gradually moderating.
 
Fed officials have offered little resistance to that narrative. San Francisco Fed president Mary C Daly says the economy may remain in a low-hiring, low-firing phase, though she cautioned that conditions could still deteriorate. 
 
Meanwhile, US Fed governor Stephan Miran stressed the importance of central bank independence, while conceding that complete insulation from politics is unrealistic.
 
Treasuries edged higher at the start of the week, with 10-year yields slipping to around 4.2% as investors positioned ahead of crucial labour market and consumer price index (CPI) data. Any downside surprise in those releases could further dent the dollar by cementing expectations of earlier policy easing.
 
For now, the message from markets is clear: the US dollar is no longer benefiting from unquestioned safe-haven status. With China’s quiet diversification adding to doubts and US political and policy uncertainty lingering in the background, rallies in the greenback are likely to face stiff resistance in the near term.
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