US Dollar: Stock-driven flows raise vulnerability – Commerzbank
Commerzbank’s Volkmar Baur highlights that the US current account deficit remains large at about 3% of GDP and increasingly relies on foreign inflows into US stocks rather than bonds.
Commerzbank's Volkmar Baur emphasizes that the US current account deficit, which stands at about 3% of GDP, increasingly depends on foreign inflows into US stocks, rather than bonds. He points out that equity flows are far more unpredictable, linking support for the US Dollar more closely to the US stock market, household wealth, and private consumption.
In the four years prior to mid-2024, the US current account deficit could have been funded almost entirely by inflows into US bonds. However, in recent quarters, inflows into US stocks have become more critical. This means that capital inflows, and thus support for the US dollar, will rely more heavily on the performance of the US economy and, consequently, the US stock market.
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