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Is the US dollar preparing for explosive growth?
In the US, the government debt ceiling was temporarily raised last week
Oct 19, 2021
1 min read
Anna BakkerNews analyzer

Soon, the US budget will withdraw 480 billion dollars from the markets, which threatens to strengthen the dollar.

The dollar has suspended growth in recent weeks ahead of the November meeting of the US Federal Reserve. As expected, on November 3, the regulator may announce the beginning of the reduction of QE programs.

Meanwhile, last week, US President Joe Biden signed legislation to temporarily raise the government debt limit by $ 480 billion until December 3. And for this amount, the US Treasury can now provide net loans (increase in debt minus repayment).

The US Treasury is launching a series of major government bond placements, shifting the budget of the world's largest economy into “vacuum cleaner” mode, taking dollar liquidity from the markets, finanz writes.

Taking into account the maturity this week, the US budget will withdraw $ 110 billion from the system, follows from the data of the Ministry of Finance. In the last week of October, this amount will increase sharply due to the placement of notes for a period of 2, 5 and 7 years.

For a dollar-denominated liquidity balance sheet and markets accustomed to excess liquidity, an increase in the US debt ceiling means a 180-degree reversal.

Since the beginning of the year, the US budget has been a "donor" of dollar liquidity, actively spending more than $ 1 trillion, which has become a kind of "second QE" - in addition to what the US Federal Reserve is conducting, printing $ 120 billion a month.

The "avalanche of placements" of American debt promises a strengthening of the dollar and an increase in its rates by the end of the year. The fact that US banks have amassed huge reserves of free liquidity - $ 1.2 trillion, deposited with the Fed through reverse repo transactions - will help smooth this process.

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