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:: 10.20.2004 ::
Why a huge deficit is so bad for the US
Well, one big reason, anyway: "The dollar continues to lose ground against the major currencies as traders assess just how quickly the United States can plug its growing trade deficit," said Paul Jackson, a senior foreign exchange dealer at CMC Group.
Amid lingering doubts over the widening trade deficit, weak equity portfolio flows and outflows of foreign direct investment, some market watchers said the dollar may weaker [sic] even further.
"We now project the euro at 1.27 dollars in one month and at the all-time highs of 1.29 in three months," said Daniel Katzive at UBS.
West LB analysts said political considerations were also playing a hand in depressing sentiment on the dollar.
"Not only is the (US presidential) election outcome too close to call, but media coverage about the risk that a re-elected Bush government may allow the differences with Iran to escalate do not calm market nerves," they said.
The dollar's decline comes a day after JP Morgan said net foreign capital flows into the United States fell to 59 billion in August dollars from a revised 63.1 billion in July.
The bank's analysts said such data highlight the lack of capital inflows into the United States at a time when the trade deficit is set to "test new all-time highs."
JP Morgan economists believe the current account deficit could reach six percent of GDP by year end due to high oil prices and a persistent US-foreign demand growth gap. Yuck. Full story here.
:: Deb 3:53 PM :: permalink ::
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