This is China related. Lots of the Chinese longs were borrowing yuan, and there was a squeeze in borrowing costs and they had to liquidate.
The wall street journal has written an article about the chinese squeeze, because it affected ALL forex, not just bitcoin:
http://www.wsj.com/articles/u-s-dollar-retreats-after-fed-minutes-1483588809The Chinese yuan surged against the U.S. dollar for the second day running, spurring a broad rise for Asian currencies on Thursday after a dovish set of minutes from the Federal Reserve overnight led traders to temper expectations of higher U.S. interest rates this year.
The dollar depreciated 1.0% against the yuan in offshore markets, at one point reaching a two-month low of 6.7845, extending Wednesday’s decline that was likely the result of yuan buying in the offshore market by Chinese state-owned enterprises. It sank 1.3% against the Japanese yen, which was recently trading at 115.8370, and lost 1.1% against the New Taiwan dollar.
The dollar’s dive represents a partial reversal of the currency’s strengthening since Donald Trump’s victory in the U.S. presidential election in early November. Markets had been betting that Mr. Trump’s economic plans would stoke higher inflation in the U.S., causing the Fed to raise rates quicker than previously expected. The dollar’s initial slide on Thursday came after the Fed suggested in the minutes of its December meeting that the currency’s recent strength could in fact slow the pace at which it raises rates.
The Fed noted that “a further strengthening in the dollar could lead to tighter financial conditions that restrain economic activity and inflation—a key downside risk,” economists from Oxford Economics wrote in a research report. “In this light, we see the Fed hiking rates just twice this year and waiting until June to engineer the next rate hike.”
The dollar took a further leg down around lunchtime trading in Asia, as markets digested the latest evidence of China’s increased efforts to stem the yuan’s recent weakness.
The cost of borrowing the Chinese currency in Hong Kong, the world’s major center for offshore yuan trading, rocketed to 38.335% on Thursday, the highest level since a record set almost a year ago. The rate’s surge was taken as a further sign of Beijing’s efforts to make it expensive for speculators to bet on a falling yuan. “Higher funding rates for the offshore yuan have sent a message to the markets and created spillover effects on the rest of the region,” said Roy Teo, senior foreign-exchange strategist at ABN Amro in Singapore. Strength in the yuan typically lifts currencies of countries neighboring China, many of which conduct most of their trade with Asia’s largest economy.
New reporting requirements on foreign-exchange transactions by Chinese citizens, as well as adjustments to the basket of currencies the People’s Bank of China uses to determine the currency’s value, had already encouraged expectations the yuan could strengthen in recent days, Mr. Teo said.
“The Chinese authorities are doing their best to stabilize the renminbi over the short term and discourage Chinese citizens from buying foreign exchange,” said Heng Koon How, a senior forex strategist at Credit Suisse.
The dollar’s sudden move lower in the middle of Asian trading hours caught traders off-guard.
“We are seeing short-term traders in the market out to take profits,” said Stephen Innes, head of trading in Asia for forex broker Oanda. “Those with long-dollar positions should stay firm.”
The U.S. dollar also dropped 0.9% against the Korean won, which was recently trading at 1183.6100, and against the Indonesian rupiah, falling 0.9% to 13332.00. Asian equities largely continued their start-of-year strength Thursday even as the U.S. dollar fell. The Nikkei Stock Average finished down 0.4%, paring just a bit of Wednesday’s 2.5% jump in that market’s opening session of 2017. But if the yen’s gain versus the dollar is sustained in U.S. trading Thursday, it is liable to weigh on Japan stocks Friday.
The Shanghai Composite Index rose 0.2%. The yuan’s rebound the past two sessions “will alleviate the outflow pressure,” said Margaret Yang, market analyst at CMC. “That is a positive factor to the domestic equity market.”
South Korea’s Kospi stock index fell 0.2%, while gains were logged in many other markets, with Australia’s S&P/ASX 200 climbing 0.3% and Hong Kong’s Hang Seng Index jumping 1.5% to post its biggest gain since Nov. 10. In Australia, energy stocks were among high risers after oil prices soared overnight, despite crude prices drifting slightly lower in Asian trade. —Willa Plank contributed to this article.
