Foreign holdings of US assets rises to record - Mercedes-Benz Forum

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post #1 of 1 (permalink) Old 11-16-2005, 09:54 AM Thread Starter
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Foreign holdings of US assets rises to record

Foreign holdings of US assets rises to record

Foreign investors poured a record $101.9bn into US assets in September, according to Treasury data which eased market concerns that any fading demand for dollar assets could undermine the US currency's value.

The dollar has recently rallied to two-year highs against other leading currencies, but many traders have warned that the US currency still remains vulnerable to a sharp sell-off should foreign investors lose their appetite for US assets and their need for dollars fall as a result.

Currency traders watch the portfolio numbers and as a rule of thumb, look for the net inflows to cover the US trade deficit for the month, which in September reached its own record at $66.1bn.

"The data are very dollar friendly," said Alan Ruskin, research director at 4Cast consultancy. "The inflows are very large by any measure and suggest that the phase of hedging [that drove] dollar strength in March and April has given way to consistent strong longer-term flows, driven in the main by interest rate spreads."

Shortly after the data were released, the euro slipped to its worst levels of the day against the dollar at $1.167, not far above its two-year low of $1.1641 reached on Tuesday.

The report was also taken as good news for US Treasuries, where most believe prices have been supported by Asian central banks and other institutions recycling their dollar trade surpluses into US assets. If this were to ease, prices could fall and yields rise, pushing borrowing costs much higher.

The bulk of the $101.9bn flowed into US bond markets, including Treasuries, but economists said a surge in inflows into equities was encouraging since it indicated a possible broadening of investor interest which should support future inflows and leave the dollar less dependant on demand for bonds.

Thanks, D.

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