Given the fiscal deficits and trade deficits of the US what

Given the fiscal deficits and trade deficits of the U.S., what do you expect the exchange rate respect to the EURO and YUAN be at the end of the year? Explain your logic.

Solution

When U.S is facing fiscal deficit and trade deficit, the exchange rate would decline with another currency. The value of U.S dollar would decrease as the depreciation has taken place. The exchange rate with respect to EURO and YUAN would decrease.