Japan is a much larger holder of Treasures, so if they made any change in their foreign exchange policy, that could have a significant and immediate impact on U.S. markets.
The market did react quite negatively to the dollar as this rumor triggered speculation this administration may be giving up its strong dollar policy.
The dollar has been propelled by cyclical factors, namely the Fed raising rates boosting the dollar.
Growth is still quite strong and therefore there may be more room to hike. When you look at the interest rate differentials they still favor the dollar.
The Fed is closer to moving to a pause in monetary policy. We've turned more bearish on the dollar.
I don't think foreign investors buy these comments from Snow, and that the U.S. believes in a strong dollar. It is a bit old and one of the reasons why you have not seen the flows into the U.S. to support the dollar.
Once investors shun away from U.S. investments, then the current account deficit becomes an issue. It will weigh heavily on the dollar.
The risk is that the dollar becomes stronger if there is any hint that the economy remains buoyant and the markets start to price in a greater probability of another rate hike in March.
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