The dollar is at risk from further deterioration in the Fed’s balance sheet as it moves to stabilize the US banking system.
Markets are taking a breather this morning after the histrionics of last week. Nonetheless, problems remain, with several smaller US banks still at risk after the decimation of sentiment in the wake of SVB’s collapse.
The calm is being aided by reports that one particularly beleaguered lender, First Republic, will receive more support from the Fed. The central bank is expected to extend its lending programs to help banks in First’s position.
There are two principal ways the Fed can use its balance sheet to ease:
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through expanding it (QE and lending programs);
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and by deteriorating it (credit easing).
How it eases depends on the securities the banking system uses to “make position”.