here's another on the dollar....sorry if this got posted already...
Monday June 5 6:38 AM ET
U.S. Imbalances Leave Dollar Susceptible
BASEL, Switzerland (Reuters) - The U.S. current account deficit and a build-up in U.S.
external debt both raise questions about whether the dollar's levels can be sustained, the Bank
for International Settlements said on Monday.
In the conclusion to its annual report, it noted that the dollar ``appears to be stronger than is
compatible with the stabilization of longer-term external debt ratios.''
So far, it noted, foreign investors were still willing to help finance the U.S. need for capital.
``Private and official investors apparently remained more than willing to finance the current
account deficit in the United States, which rose to $339 billion in 1999,''the BIS said.
But the BIS also saw worrying signs ahead, particularly as
foreign investment shifts more toward equity.
Some factors may help to reduce concerns. For example,
foreign exchange reserves held in dollars rose strongly in
1999, particularly in Asia. Private investment flows into the
United States also surged. The BIS noted that foreign direct
investment was equal to 40 percent of the U.S. current account deficit.
But despite this, ``the sharp increase of international flows to U.S. equity markets raised
concerns about the impact of possible strains in these markets on the future financing of the
external deficit,'' the BIS said.
Low Correlation Between Dollar, U.S. Stocks
Perceptions that structural changes were proceeding more rapidly in the United States than
elsewhere in the world had helped investment flows.
But the dollar continued to appreciate this year against the euro despite a pullback in U.S.
stocks.
The BIS noted that the correlation between currency fluctuations and stock market
performance, which in 1999 was fairly high for the dollar, has diminished in 2000. It added that
such correlation had been spotty historically.
``Overall, these results suggest that the relationship between exchange rate movements and
stock market returns is weak,'' the BIS said.
``Moreover, the time pattern of these correlations does not support the conclusion that they
were broadly driven by key macroeconomic fundamentals, such as the cyclical performance,
or by the relative monetary policy stance.'' |
