FX alert: From safe haven to sell-off – Dollar wobbles as US plumbing springs leaks

Yesterday felt off. Smoke signals were everywhere — whispers of sovereign wealth fund selling, China dumping $50 billion in Treasuries ahead of this week’s auctions — and sure enough, the 3-year auction came in messy. $58 billion on offer, and demand just didn’t show. Dollar-negative? Absolutely.

My first read was classic: bonds selling off, yields spiking — a dash-for-cash move. Safe havens were getting clipped, and I figured the dollar might catch a bid on pure liquidity preference. So I bought a little more against Asia. But Treasuries kept leaking. They weren’t acting like a safe haven — not even close. They cheapened hard vs SOFR, and the post-auction tape was a mess.

Then it clicked.

Ironically, I’d just finished reading a note from Dr. Torsten Slok at Apollo yesterday — solid stuff, by the way — all about the basis trade. And that’s when the alarms really started ringing. This isn’t just about pricing in recession and more Fed cuts anymore. That narrative’s still alive and well — and yeah, that’s still a reason to buy bonds. But the bigger problem now? “Sell America Inc.” is becoming a thing.

And when you layer in plumbing issues — basis trades under stress, auctions going soft, whispers of foreign divestment — the dollar starts to look like the dirtiest shirt in the laundry basket, at least in the short term. We’re not in safe haven land anymore; we’re in US asset liquidation mode. Gold could be going much higher here, folks.

I won’t sit here and tell you to be long dollars or euros. We’re at the extremes now— and it's all held together with duct tape. Still, I’ve been adding some EUR through 1.1000; it has a high liquidity profile and less exposure to the U.S. bond plumbing, which I think works. The euro’s starting to look like the adult in the room again.

Meanwhile, it’s getting wild:

• Spot trades blocked in China as the yuan weakens ( BBG)

• 30-year yields +20bps,

• 10s ripping through 4.51%,

• Nikkei down 5%,

• And Powell? He may not want to bail out Trump… but let’s see what happens when Jamie Dimon shows up at 33 Liberty at 6 AM tomorrow.

Yeah, I know — I’m long both dollars and euros. Feels nuts, but maybe it’s the perfect hedge in a world that’s fraying at the edges. If this turns into full-blown meltdown mode, I still think the dollar rips higher. But for now, this market is screaming "reduce risk, stay nimble, keep your powder dry."

And whatever you do — don’t trust the plumbing.

Yuan watch

Here’s what the China markets squad over at Bloomberg had to say about the yuan this morning:
“China is guiding the yuan weaker at a carefully orchestrated pace, as the central bank seeks to blunt some of the economic impact of the trade war without destabilizing financial markets.”

Nice spin. Reality check? It was just relief the fix didn’t come in hotter. There was a wave of overnight doom-scrolling around devaluation, so the market braced for something uglier. That didn’t materialize — hence the yuan bounce.

But let’s be clear: this doesn’t change the directional bias. The structural pressures are still in play, and the political calculus hasn’t budged. I’d be shocked if we are not trading + USDCNH 7.50 tomorrow. ( Partly my position talking)

And even more to the point — letting the yuan grind lower at this measured pace won’t offset the blow from a full-blown tariff barrage. The levies are simply too big. China is trying to thread the needle, but the runway is short.

Also, let’s not forget the elephant in the room: who really wants to invest in a market where the rules change on the fly? Where trading gets blocked and the currency is nudged around depending on which way the geopolitical wind blows?

This whole setup has “capital flight” written all over it. This isn’t some genius FX engineering. It’s desperation wrapped in a controlled leak. And the cracks are showing.