- Budget deficit rises to the highest levels that the U.S has ever experienced.
- U.S dollar faces more pressure
- Government spending increased in a bid to cushion the economy from coronavirus-induced collapse.
The U.S Treasury department released a worrying report on Monday through which it revealed that the U.S budget deficit for June was $864 billion. This is the highest ever budget deficit that the country has encountered. The deficit is related to the hefty government spending during the coronavirus pandemic. Congress released trillions of dollars to shield the economy from collapse amid the economic fallout caused by the viral outbreak.
The U.S government has increased its spending, particularly through relief programs such as the expanded unemployment benefits through which those eligible receive an additional $600 every week. Even more worrying is that the current budget deficit is on track to reach the $3.7 trillion projected annual deficit for 2020.
Is the huge budget deficit a sign of trouble ahead?
The huge budget deficit certainly raises some red flags and places more pressure on the U.S dollar. The currency has been a favorite for investors looking to use it as a safe haven amid the global economic downturn that has prevailed during the COVID-19 outbreak. However, the massive budget deficit in the U.S highlights the cracks on the dollar’s proverbial wall. In other words, the dollar might lose some ground as investors shy off over concerns that the economy is currently on thin ice.
The EUR/USD exchange rate kicked off Monday’s trading session on a bullish trend, highlighting that the U.S dollar slipped, thus paving the way for the Euro to make some gains. It maintained the bullish trend on Tuesday with the technical view indicating that it will trade long above 1.1359. Key price targets were expected at 1.1379, 1.1393, 1.1419 and 1.1458. The concerns may see the Euro gaining some ground against the U.S dollar as investors shy off from the greenback due to increased risk.