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USD strength could slow down pace of Fed tightening - SocGen

FXStreet (Bali) - Such a rapidly rising USD could slow down the pace of Fed tightening, notes Societe Generale.

Key Quotes

"As the Fed fears the risks associated with a rapidly rising USD, it will likely slow down the pace of Fed tightening. Foreign reserves and investors starved out of yield may extend their duration from ultra low levels (depressing UST yields) and hence demand for the USD. US economic data could also surprise sharply to the downside leaving the Fed to join the fight to devalue, a fight it has repeatedly won in the past."

"Squeezing position is an art in itself and the long USD position is a core position. The good news is that investors have turned to a more asset allocation process in G10 macro, making it harder to squeeze these deep-pocketed investors. CTAs and the like will as usual be squeezed given ultra tight risk management procedures."

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