Wall Street is bracing for possible stress in the currency markets by putting some cash aside ahead of the U.S. tax season, when large tax-related outflows could hurt market liquidity. The tax season culminates on April 15, when individuals file their income tax returns with the U.S. federal government, which typically leads to a drop in financial sector liquidity as individuals withdraw cash from bank deposits and money market funds to pay their taxes. Liquidity, as measured by the Federal Reserve's bank reserves and the Fed's overnight Riposte Ratio (RRP), the favored cash depository for money market funds, is still considered ample, but analysts say the high capital gains from last year's stock market boom could make this year's outflows particularly significant, which could lead to a spike in short-term interest rates.
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