Q&A: Jon Turek on Where Things Now Stand in the Dollar Doom Loop

Jon Turek of JST Advisors spoke with us about the risks of a dollar doom loop. Financial markets all around the world are coming under stress as a result of the surge in the dollar spot index. While there is a scarcity of dollars around the world, the Federal Reserve is not willing to ease this stress due to its fight against inflation. Where are things now in the dollar doom loop?

Jon and I chatted over the phone for an update. A transcript of our conversation is below.

The man is Joe Weisenthal.

What do you think about the news out of the UK today? Is the bond market stable for the Bank of England.

The man is Jon Turek.

Yeah, I mean it’s a really interesting one. In practice, as we've seen today, they can. They announced a pretty huge quantitative easing (QE) program to run through the next few weeks which will stabilize the market on sheer size. However, they are doing a pretty sizeable QE program a week after they announced quantitative tightening (QT) and hiked 50 basis points and have almost 10% inflation. So really the question for the BoE is not if they can get 30-year gilts to print a certain level, but at what cost in an elevated inflationary backdrop? The question for the BoE and the market may get to the place of, what do they care more about, the long end of the gilts market or their currency?

The person is Tracy Alloway.

The BoE is not alone in intervening in the bond market. Is central banks losing control of bond markets here? Is it possible for everyone to attempt to cap yields at a time of inflation?

Jon.

It's definitely a tide. The question will be relevant again with the new BTPs and TPI tools. There is an overarching theme going on which has resulted in this rug pull in the liquidity and is making it difficult for central banks to protect local markets. We are in a risingUSD/risingyield world at the same time. This is not the way it should be. It is what makes this shock different.