By Steven Vames
A DOW JONES NEWSWIRES COLUMN
Though scary for the
dollar nonetheless, most of Treasury's international capital system flows data
merely confirmed the well-advertised fact that foreign purchases of fixed
income remain well below levels from earlier in the year and that foreigners
still aren't very enthused by the
But what was new and
unexpected was that
Though one month doesn't a decisive trend make, the data could signal that as a falling dollar started to make front-page news in September and October, equity investors took the cue, sending some investment dollars overseas.
"If this demand were to remain elevated or grow, it would further stack the deck against the dollar, adding to the growing trade and investment income deficits that must be finance by foreign flows,"' said Daniel Katzive, foreign exchange strategist at UBS in Stamford, Conn.
Some dismissed the jump
as a fluke. "For now, we have to look at the rebound in the
Still, the phenomenon struck many analysts as surprising and could represent yet another threat to the dollar at a time when it doesn't have much going for it anyway. Given that U.S. consumers inherently have less buying power abroad now, it suggests they are betting the dollar will weaken further, which will still given them room to gain not just on the investment but on the exchange rate.
The shift in
If investors are indeed making decisions, based on the dollar outlook, to put more of their equities holdings overseas, it would in many ways be the inverse of what was seen in the late 1990's and 2000, when foreigners found a strengthening dollar to be a pretty thick icing on the cake of the rising stock indices.
Others say it might be more of a signal that dollar bearishness has gone so mainstream that it's finally reached its last frontier. If that were the case, it might be a sign that the dollar's fall has started to run its course.
"Once the average
unsophisticated investor is on board, the trend is so cool that its become uncool," said Josh Levy, managing director of
Asset Management in
(Steven Vames covers foreign exchange for Dow Jones Newswires in
Dow Jones Capital Markets Report English
(c) 2004 Dow Jones & Company, Inc.
-Steven Vames; Dow Jones Newswires; 201-938-5063;