Forex Blog: Currency Trading News & Analysis.

January 25th 2006

The Mystery of US Capital Inflows

While the US twin deficits have soared over the past few years, many currency traders have remained bullish on the USD. Their reasoning is that as long as foreigners remain willing to finance this deficit (by purchasing dollar-denominated assets), the USD should remain stable. However, while 2005 was a record year for capital inflows, there was an interesting trend that could spell trouble for the dollar if it continues. It seems a majority of capital inflows are now contributed by private, rather than public entities, leading many analysts to speculate Central Banks are slowing their purchases of USD. However, there is a glitch in the data, in that if a public entity buys USD through a private investment bank, then the transaction is recorded as private. The Business Online reports:

But regardless of how much of the cash is from governments and how much from private sources, one simple fact is clear: in the absence of a major shock, the dollar will continue to be supported by foreign capital.

Read More: Private vs Official Dollar Purchases

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© 2004 - 2024 Forex Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.