dollar emerging markets euro yen

Dollar On The Move, EM Under Pressure As Fed Holds Firm On Trajectory

Dollar bears on the back foot all of the sudden...

With one more hike still the cards for 2017 (despite pitiable incoming inflation data, risks around the near-term data thanks to Harvey and Irma, and the distinct possibility that the December meeting will coincide with another fiscal showdown on the Hill)…


…the market is reacting as you might expect.

As noted a few minutes ago, stocks immediately dipped with gold while the dollar and yields spiked, and as you might imagine given the implications of a stronger greenback for the previously bulletproof carry trade, EM equities are sliding (VIX in the bottom pane):


“Today’s FOMC will provide a boost for the USD as markets reprice a higher chance of a December rate hike after toning down their expectations earlier,” Sireen Harajli, an FX strategist at Mizuho says, stating the obvious, but underscoring the risk for EM.

Meanwhile, EURUSD is at a fresh low while USDJPY is surging:


Meanwhile, here are the balance sheet details…

  • In the New York Fed’s System Open Market Account Holdings, the amount of Treasuries maturing each month ranges from $8.7b to about $19b for the next few months, with the central bank owning as little as $35m of some securities.
  • The Fed’s initial cap for its balance-sheet normalization will begin with Treasury securities maturing Oct. 31, according to New York Fed statement
  • In the addendum to its Policy Normalization Principles and Plans updated in June, the FOMC said it plans initial monthly reductions of $6b/month for Treasuries and $4b/month for MBS, gradually increasing those amounts to $30b/month and $20b/month

Following is a list of Fed’s SOMA Treasury holdings set to maturing in 4Q, all amounts are par value:

  • October: $8.7b Treasuries
    • 0.75% Oct-31: $5.28b
    • 1.875% Oct-31: $3.42b
  • November: $18.9b Treasuries
    • 0.875% Nov-15: $35m
    • 4.250% Nov-15: $11b
    • 0.625% Nov-30: $70m
    • 2.250% Nov-30: $7.8b
  • December: $17.5b Treasuries
    • 0.750% Dec-31: $4.22b
    • 2.750% Dec-31: $13.3b

4 comments on “Dollar On The Move, EM Under Pressure As Fed Holds Firm On Trajectory

  1. well….looks like Janet whispering sweet sounds has reversed all…i think we pop higher tomorrow (if not by the end of today) at a minimum and that may be a good place to go long Vol and short the spoos. and buy the US peso..we will see

  2. Naw… as macro trader Hugh Hendry has pointed out in his recent road tour, US is pretty much finished, “worst place in the world” as Hugh puts it. Go elsewhere! Like, good entry point in gold here in the 1290’s!

    • I seem to recall they all said “don’t fight the fed” on the way up….
      we will see but i think there will be consequences

      • The roll-off numbers are shockingly tiny for a balance sheet of $5T. It’s a joke. Like an alcoholic going sober for ten minutes. And the Fed leaves itself plenty of wiggle room to stop & reverse course in the event of a “shock”, which no doubt they’ll do when we see even a small correction in asset prices, which the Fed is dedicated to propping up per its unwritten 3rd mandate. And wait til Trump hands the Fed leadership over to fools like Marvin Goodfriend & friends who advocate NIRP and a debt jubilee – yikes!

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