Do Concerns about US Twin Deficits Justify the Dollar's Increasingly Bearish Outlook?
As the US government looks to raise $258 billion in Treasury auctions this week, the risk from a ballooning US deficit is weighing on investors' minds as concerns grow about the sustainability of the worsening fiscal shortfall in the United States. The prospect of a burgeoning budget deficit comes at a time when the country's trade balance has also been deteriorating in recent months. More worryingly, it is occurring against the backdrop of an economy that is at a late stage in the business cycle with limited spare capacity left to absorb.
These concerns, along with expectations that other central banks around the world will this year start catching up with the Federal Reserve in tightening monetary policy, have been weighing on the US dollar, even as the growth and inflation outlooks improve.