Potential dollar scramble as investors unwind FX swaps, causing market instability

From Yahoo Finance: 2025-05-19 18:16:00

The Bank for International Settlements warns of potential dollar scramble as investors unwind $113 trillion in FX swaps amid U.S. volatility. Non-bank financial firms hold over $80 trillion in FX swaps, creating concerns about market instability. The sudden rush to unwind positions could lead to a spike in the value of the U.S. currency.

Moody’s downgrades U.S. credit rating, citing concerns over massive increase in government debt. Market turmoil in April intensified by President Trump’s trade war has weakened the dollar. The unusual combination of U.S. stocks, bonds, and the dollar selling off simultaneously raises questions about investor sentiment towards U.S. assets.

Head of BIS’ monetary and economics department raises questions about U.S. exceptionalism amid market turbulence. Uncertainty surrounds whether major investors are selling down U.S. assets or simply hedging. Strategic changes may be considered by investors as they navigate the current market conditions.



Read more at Yahoo Finance: Central bank body BIS flags potential for dollar scramble