[For the nth time, of course. But still . . . ]
Financial Times; Apr 27, 2002
THE AMERICAS .....: Analysts sense day of reckoning for dollar: A fall in capital inflows to the US has alarm bells ringing, reports Christopher Swann
By CHRISTOPHER SWANN
After a frustrating couple of years, dollar bears in the foreign exchange market are scenting blood.
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The key problem for the US currency is that investors do not need to sell US assets for the dollar to fall. All that is necessary is that they fail to buy.
The bloated US current account deficit, running at about 4 per cent of gross domestic product, means that the US needs to attract a net inflow of around $1.5bn every day in order to stop the dollar falling.
The latest figures from the US Treasury provide strong indications that capital inflows are finally drying up. In January the net inflow into US equities and fixed income was just $9.5bn. This is weak even compared with the $17.8bn the US attracted in September.
Analysts say the US is struggling to attract funds because its asset markets are no longer outpacing the rest of the world.
"Over the past few years, just when one source of inflows for the dollar ran dry another would take over," said Ray Attrill, director of research at 4Cast, the economic consultancy. "Now it is becoming harder to see how the US can attract enough funds to prevent the dollar from falling." Inflows into US corporate bonds, which funded the lion's share of the current account last year after mergers and acquisitions inflows dried up, are thought unlikely to be as important in 2002. Economists are concerned that recovery has been based on companies rebuilding their stocks after the slowdown and government spending rather than on a pick-up in investment spending.
"This is low-quality economic growth of the kind that does not boost corporate profits," said Paul Meggyesi, senior economist at Deutsche Bank. "It is looking increasingly like the day of reckoning for the dollar is close at hand."
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