The dollar is preparing for an explosive rally. Before the US government was to adopt the law on the debt ceiling, many analysts forecasted the dollar to rise sharply. However, it has been a week since the government’s law passed, and the stunning rally has not happened yet.
The events unfolded by the following scenario. The dollar was hovering while waiting for the Congress’ decision on the debt ceiling. After the debt ceiling was increased, the dollar should have skyrocketed. After approval in Congress, President Joe Biden endorsed the law on raising the debt limit by $480 billion till December 3. The Department of the US Treasury can implement net borrowings up to that amount. The dollar reacted with a slight rise, but it cannot be called a sharp one. The upcoming Fed meeting, which is scheduled in November, is muting the dollar’s rally. If the regulator announces the launch of the QE program tapering, USD may soar. Another factor for the dollar’s surge is the US Treasury, which is preparing to launch a series of large auctions of government bonds, switching the budget of the US economy in a "vacuum cleaner" mode, removing the dollar liquidity from the markets. According to the repayment plan, the US budget will receive $110 billion this week. The massive US government bond auctions may reinforce the US dollar’s uptrend and in turn raise the values of dollar-denominated assets by the end of the year.
