Rising Debt, SWIFT, and Forex Opportunities in the Current Market


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We saw the second and third largest bank failures in U.S. history last week – all thanks to the chaos led by Silicon Valley Bank (SVB) and the Signature Bank.

But the damage wasn’t limited to these banks.

As troubles for banks grew with massive fund withdrawals, it led to a sell-off in the banking sector.

Let us understand why this happened and also have a look at the role of SWIFT in global debt levels which can indirectly impact the Forex markets.

What is SWIFT?

SWIFT is the world’s leading provider of secure financial messaging services. Based in Brussels, Belgium, it was founded in 1973 by 239 banks from 15 countries as a cooperative to create a secure financial messaging system. 

Now SWIFT is a critical component of the global financial system. It facilitates cross-border payments, foreign exchange transactions, and other financial operations. 

It helps trillions of dollars of cross-border payments between over 11,000 financial institutions in more than 200 countries.

All major banks transfer all major currencies using the SWIFT message system and cutting a nation off from the system is like taking away its oxygen. 

Each member on the SWIFT network is assigned a unique code that is either 8 or 11 alphanumeric characters long. 

So, banks that are on the SWIFT platform could facilitate cross-border and cross-currency interbank transactions using these codes. There are costs when making a SWIFT transfer to access SWIFTNet and a small fixed fee for messages sent.

Who Governs SWIFT?

SWIFT is overseen by the G-10 central banks and the European Central Bank, with its lead overseer being the National Bank of Belgium. In 2012, the Swift Oversight Forum was established, in which the G-10 central banks are joined by other central banks from major economies.

Global Debt Levels & SWIFT

Global debt levels and SWIFT transactions can influence each other since many central banks and nations govern it and there are many nations involved.

The debt levels of countries involved in SWIFT have been subject to significant fluctuations over the years. But let’s talk about the recent past…

In 2020, the pandemic led to a significant increase in government debt levels in many countries around the world. 

One of the simple reasons why we got here is the easy money that was flushed across economies by central banks with low interest rates and stimulus checks.

As we know, high levels of debt can lead to financial instability, inflation, and other economic problems. And that’s what we’re witnessing with the SVB saga currently. 

You see, the Fed started hiking rates last year and took it from 0% to almost around 4.5% currently. Raising rates to curb inflation is fine. But it can have other implications in the financial world. 

Bond prices fall when interest rates rise

And that’s what happened. As the Fed went on raising interest rates, bonds took a beating. This had implications for SVB as well as other banks which invested their cash in bonds and securities.

Here’s a look how losses on these investment securities mounted in 2022:

Take the example of SVB – the value of SVB’s bond investments tanked and the bank was left with huge losses on its books. As the concerns grew, depositors rushed to withdraw their money from SVB and the bank had no option but to sell the bonds it invested in. It sold its $21 billion worth of these securities last week at a $1.8 billion loss.

Customers took out around $42 billion in a single day from SVB, leaving the bank with $1 billion in negative cash balance. At last, the U.S. regulators, including the Fed, the FDIC and the Treasury Department, had to step in and they announced that all depositors in these banks would get all their money back and not just the insured $250,000 limit.

All in all, it was a classic case of how things can go south in the financial and banking system in a matter of hours.

What Comes Next?

The banking industry plays a vital role in any economy as well as financial markets. This is because both credit growth and banking margins are dependent on an economy’s growth and interest rates.

While SVB is relatively smaller as compared to the global banking industry, its fallout sent stocks of major banks such as JPMorgan, Citigroup, Bank of America, etc. to the cleaners. Moreover, there are more troubles for regional banks that have an exposure to SVB. 

Most importantly, there are worries around rising interest rates. The Fed wants to raise them to stop inflation. But doing so could also mean more troubles ahead for banks as well as the economy. So, it’s a tough choice!

As for SWIFT nations, the above developments can impact the monetary policies, sanctions, and debt levels for many economies. They will also impact the global financial ecosystem. And they all could move the Forex markets in a BIG way! 

Remember the upcoming Fed meeting is scheduled on March 22

Market participants should keep in mind that the increased market movement could lure you to take fast action. We believe it’s important that you have a solid trading strategy in place and manage your downside risks with the right asset allocation

Our pro analysts are closely monitoring changes in interest rates and debt levels in today’s market. They’re predicting a major shift for this pair in the coming days. Click here to learn about the forecast.

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Predicted movements expected to last through the end of Q1 2023.

Predictions are not a guarantee of this or any result. Information provided on this prediction is for general information purposes only. We offer no representation or warranty with regard to this prediction. No prediction is personalized or otherwise directed at any individual or particular circumstances. We disclaim and will not accept any liability for losses associated with this prediction.

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