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Current account financing sends mixed dollar signal
Cat : Euro/ Dollar
Date : 2006-06-19 09:46:07                      Reader : 2599
We believe US needs first to change its policy , from state war to state of peace. Otherwise foreigners will outflow their assests from US to other stable, peaceful, states that not only encourages investors, but also achieve high rate of development to about triple that of US .


REUTERS 19/6/2006

Current account financing sends mixed dollar signal


By Jamie McGeever

NEW YORK (Reuters) - The U.S. current-account deficit narrowed in the first quarter this year by more than expected, providing some support for the U.S. dollar, but the composition of capital inflows financing that deficit provides a mixed signal for the currency.

The current account deficit, the broadest measure of trade and investment flows between the U.S. and the rest of the world, narrowed in the first quarter to $208.7 billion, or 6.4 percent of gross domestic product, from $223.1 billion or 7.0 percent of GDP in the prior three months.

And a closer look at the U.S. Commerce Department’s balance of payments data published on Friday reveals that the net income balance, or the difference between income earned by U.S. investors on their foreign investments and what foreigners earn on U.S. assets, crept into surplus from a deficit the previous quarter.

The U.S. posted a net investment income surplus of $1.9 billion in the first quarter, compared with a $2.2 billion deficit in the fourth quarter of last year. This was indeed a surprise, given that overall U.S. net international liabilities grew by $157.7 billion.

"The most important aspect is that the income balance flipped to surplus. That was surprising," said Jens Nordvig, currency strategist at Goldman Sachs in New York.

While in no way saying he’s suddenly turning bullish on the dollar because of the improvement in the current account deficit and the net income balance, Nordvig reckons, "it’s not as bad as it could be" for the dollar.

In addition, gross purchases of U.S. assets by foreign investors surged to a quarterly record of $491.5 billion.

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