United States government to bail out banking sector

The debacle of three mid-size banks resulted in the loss of confidence of households in mid-size banking organizations. Reuters reported on Monday that households have withdrawn their deposits heavily from small US banks and firms are heavily relying on advances from them, which has made them prone to meltdown.

To contain the same, the US government came forward with an expansion of emergency liquidity assistance to small lenders. The headline was followed by the announcement of the acquisition of deposits and loans from failed Silicon Valley Bank (SVB) by First Citizens BancShares. The idea of bailing out SVB is going to deliver a message that the overall banking system is strong, resilient, and sufficient enough to face turbulence. Apart from that, US Treasury Undersecretary for Domestic Finance Nellie Liang stated, “The US government will continue using its tools to prevent contagion in the banking sector, as warranted, to ensure Americans’ deposits are safe,” as reported by Reuters.

Positive steps from the US government for bailing out collapsed banks and restoring of confidence of investors and households have impacted the US Dollar.

Investors split about Federal Reserve’s interest rate decision

After an eight consecutive rate hike by the Federal Reserve (Fed), interest rates have knocked the 5% figure. Federal Reserve chair Jerome Powell showed bravery and hiked rates further by 25 basis points (bps) despite fears of a banking sector meltdown. However, the further road to inflation containment looks tricky.

The investing community is split about whether the Federal Reserve will keep policy unchanged or will continue its policy-tightening spell. As per the CME Fedwatch tool, more than 50% of investors are advocating for the maintenance of a status quo by the Federal Reserve (Fed) in its May monetary policy meeting as tight credit conditions approach by US banks would actively weigh on US inflation. The approach has heavily impacted the USD index.