cryptogon.com

“What it introduces is the problem of the currency to the extent that the Fed is buying what isn’t desired by foreign holders,” said Bill Gross, co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television on March 19. “The Fed can keep interest rates where they want to keep them, at least for a 6- to 12- to 18-month period of time, but it will have consequences down the road.”

The U.S. currency weakened beyond $1.37 per euro this week for the first time since January as the central bank’s decision to increase its balance sheet by $1.15 trillion lowered yields, making American assets less attractive. The Norwegian krone and the New Zealand dollar rallied as the Fed’s move spurred advances in commodities.

…

Treasury Yield

The yield on the benchmark 10-year Treasury note dropped the most since January 1962 on the day of the Fed’s announcement and fell 0.26 percentage point this week in its biggest decrease since December. At 2.63 percent, the yield was 0.34 percentage point lower than that of the comparable-maturity German bund. The gap widened 0.16 percentage point from a week earlier, making U.S. assets less attractive.

“We would by no means assume that the reaction to the Fed’s quantitative-easing announcement has run its course,” Credit Suisse Group AG currency strategists led by London-based Ray Farris wrote in a research note yesterday. “Fed purchases of Treasuries are likely to be quite problematic for the U.S. dollar, particularly given large foreign holdings of Treasuries and the loss of yield support for the dollar that Fed purchases have caused.”