ForexLive Asia-Pacific FX news wrap: Fed rescues depositors, ‘risk’ leaps higher

News items related to SVB, Signature Bank failures and the US authorities’ response. Read from the bottom up for the chronology:

Other items:

The
news of impact during the session, and ahead of it over the weekend,
were the woes at Silicon Valley Bank, the market expectation of
some sort of Fed/US government intervention to limit systemic
contagion, and the realisation of that with a new Fed fund to guarantee stricken depositors.

Currencies
started trading higher against the US dollar in the very early hours
with only New Zealand forex markets active. This continued as
Australian forex opened. The move higher was based on expectations of
some sort of rescue/bailout.

Within
minutes of US futures markets opening for the new week (CME Globex opened
at 2200 GMT (6pm US Eastern time on Sunday, 7am on Monday in Tokyo))
the much-awaited announcement was made. Check the links above for the
details but in summary:

• All
  depositors of Silicon Valley Bank and Signature Bank will have access
  to their funds
• Shareholders
  and certain unsecured debtholders will not be protected
• A new
  Fed facility was announced with $25 billion from ESF to backstop bank
  deposits, the
  Bank Term Funding Program (BTFP)

The
BTFP, in essence:

• allows
  banks to pledge collateral at par
• this
  means holdings of long-dated Treasuries or MBS with mark-to-market
  losses can unlock liquidity based on original value

The
news reverberated through markets for the balance of the session,
with further legs higher for ‘risk’ assets and FX against the
USD.

There
was little else of note. I will add that there was a report that US
President Biden will announce that he will not permit (or will at least
limit) oil drilling in 16 million acres in Alaska and the Arctic
Ocean. AP had the info citing a US administration official speaking
on Sunday.

—

The USD (DXY index shown here) dropped on the session: