We continue to believe that dollar scarcity is a key driver of markets, be it the effective Fed Funds rate or the foreign exchange market. While the Fed is mulling a standing repo facility (SRF) getting such a program up and running could take a year or even more (it took 14 months to get the ON RRP up and running), so maybe it’s not that much to get excited about.
But what if the Fed wants to do something to ease liquidity conditions already in July? It could decide to start buying US Treasuries imminently, which would grow bank reserves and ease dollar scarcity. While possible, the FOMC has said it plans to hold the size of its bond portfolio roughly constant for a time. Thus, starting UST purchases already in July is likely too much to hope for.
No matter why, the Fed could limit foreign official accounts access to the Fed’s repo pool if it wants to: “the New York Fed may choose to limit the overall size of, or individual account participation in, the foreign repo pool based on other factors”.
The full article is available at https://www.fxstreet.com/news/markets-why-are-foreign-central-banks-allowed-to-tighten-usd-liquidity-nordea-markets-201907221217