Forex Blog: Currency Trading News & Analysis.

February 15th 2006

US Capital Inflows fail to match soaring deficit

As the US twin deficits expanded over the last decade, economists and currency traders have turned a blind eye, pointing to foreigner’s continued willingness to finance the deficit as the reason for their indifference. However, such economists are the first to admit that as soon as foreigners lose their appetite for investing in US assets, the USD will surely suffer. That day may come sooner as later, if viewed from the perspective of the latest release of US capital flows data. In December, foreigners invested 57$ Billion into the US, a sharp drop from the $90 Billion invested in November. This represented the first time in almost a year that the monthly trade deficit exceeded capital inflows, and could serve as a harbinger for a massive USD ‘correction,’ to occur over the next few years. The Financial Times reports:

The drop in net US inflows was almost all the result of a sharp fall in net buying of Treasuries. Foreigners bought a net $18.3bn worth in December – the weakest in six months and down from a record $54.4bn in November.

Read More: Drop in US inflows spooks dollar

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