Fed: Shrinking the balance sheet won’t do much for the dollar - SocGen

Kit Juckes, Research Analyst at Societe Generale, explains that the Fed’s bond-buying added potency to rate cuts in the easing cycle and that helped weaken the dollar, but shrinking the Fed’s balance sheet (QT?) is an alternative to hiking rates and, if anything, suggests that the dollar will be lower than would otherwise have been the case.

Key Quotes

“All the more so if shrinking the Fed’s balance sheet starves EM and corporate bond markets of capital. We’re not sure that’s a realistic fear but we remain nervous that 10-year Treasury yields may break out of the bottom of their recent range, dragging USD/JPY lower, while pressure continues to build for a sharp EUR/USD rally after the French presidential election.”