Pre-Fed Jitters Tighten Liquidity

What Happened

• Desks ran lighter books into the Fed; funding spreads nudged wider and intraday volatility rose.
• The dollar stayed bid on haven demand and hedging flows, pinning EM FX and keeping EUR under pressure.
• Energy and defense outperformed again as investors rotated toward cash-generating, geopolitical hedges.

What It Means

• Liquidity stress is more about caution than crisis—dealers are keeping powder dry for the policy statement and dots.
• A bid dollar plus defensive sector strength signals that investors expect the Fed to lean hawkish even after soft CPI.
• Rotation flows are now self-reinforcing: every tech pullback funds more exposure to real assets and balance-sheet winners.

What I Think

• The Fed can’t afford a policy surprise; a steady hand likely keeps the dollar firm but may relieve front-end stress.
• If Powell pushes back on cuts, energy stays the ballast and high-multiple tech keeps bleeding.
• I’m positioned for a hawkish-hold with upside to value—anything more dovish would trigger a quick reversal but not a lasting one.

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Market Terms

• Funding Spreads — The cost of borrowing cash or securities in money markets; a barometer of stress.
• Haven Demand — Flows into USD and defensives when event risk rises.
• Hawkish Hold — Keeping rates unchanged while signaling a bias toward restraint rather than easing.