US Dollar Weakens As Treasury to Borrow Record $3 Trillion in Q2

The US dollar is weakening against some of its G10 currency counterparts on Tuesday as the federal government announced that it would borrow $3 trillion in the second quarter. The US government has been going on a spending spree to contain the coronavirus pandemic’s economic fallout, making Washington poised for a $3.8 trillion deficit for the fiscal year 2020. The greenback is also getting a hit on disappointing economic data that continues to highlight the outbreak’s financial damage.

Treasury Secretary Steven Mnuchin announced the department plans to borrow $2.999 trillion in the April-to-June period to help pay for the COVID-19 stimulus and relief measures. The Treasury also plans to borrow at least $677 for the third quarter, and it is likely that more borrowing could happen in the fourth quarter since the Federal Reserve urged lawmakers to approve more spending packages to ensure the economy rebounds in the second half of 2020 and into 2021.
While it has not been officially confirmed, market observers say the Treasury will likely offer floating rate notes (bonds with variable interest rates), inflation-protected securities, and increases to all nominal coupon auction sizes.
The benchmark 10-year Treasury note rose 0.023% to 0.66%, while the 30-year climbed 0.032% to 1.329%.
Meanwhile, the data keeps pouring in, and it continues to show the consequences of shutting down the country. According to the US Census Bureau, new orders for manufactured goods plummeted 10.3% in March, which was worse than the -9.7% market projection. Transportation equipment crashed 41.3%, machinery dipped 0.5%, manufactured non-durable goods fell 5.8%, and computer and electronic products were flat.
The US trade deficit ballooned to $44.4 billion in March, matching median estimates of about $40 billion. Exports tumbled 9.6% to $187.7 billion, while imports slumped 6.2% to $232.2 billion. The goods deficit with China declined from $16 billion to $11.83 billion.
The IHS Markit composite purchasing managers’ index (PMI) came in at 27.0 in April, down from 40.9 in March. The services PMI clocked in at 26.7, down from 39.8 in the previous month.
On Tuesday, the Institute for Supply Management (ISM) published various non-manufacturing numbers for April: prices rose to 55.1, new orders decreased to 32.9, employment plunged to 30, and business activity slipped to 41.8.
The US Dollar Index, which measures the greenback against a basket of currencies, surged 0.31% to 99.80, from an opening of 99.51.
The USD/CAD currency pair fell 0.41% to 1.4029, from an opening of 1.4089, at 15:53 GMT on Tuesday. The GBP/USD jumped 0.04% to 1.2448, from an opening of 1.2444.

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