-
FX weekly: The liquidity doom loop
We may be seeing the start of a doom-loop of sorts between foreign central banks and diminishing liquidity, as the flat USD curve incentivizes reserve managers to park money with the Fed. This is a USD positive loop, why we go short EUR/USD. Being obsessed with liquidity, we updated our liquidity forecasts for the US following Trump’s signing of the debt ceiling deal. The Treasury will now REBUILD its “crisis account” (the General Cash Account, GCA) at the Fed. We consequently see risks that dollar scarcity will pick up in coming months. Indeed, the market may have to cope with an annualized tightening of ... (full story)