Limited reaction to TIC data

The Treasury TIC data on the international capital account was released yesterday, but there was limited reaction in the currency markets http://www.treas.gov/press/releases/hp611.htm.

Maybe the market already anticipated this net outflow, but the numbers were very sobering. Net purchase of long-term securities by foreigners was just under negative $70 billion. There was a strong exit from equities by private investors but official government accounts showed a strong decline in bonds. The total of both long and short-term asset flowing out of the US was over -$150 billion.

As long as the US is running a current account deficit, there has to be capital entering the country to maintain equilibrium. The financing has to occur or there will have to be a change in the price of the dollar. If there are countries that have fixed their currencies to the dollar, the adjustment will have to come from those which are floating, namely, the euro. The stampede out of dollar assets seems to be the main cause for the gains in the euro in September.

This report is just old news of what has been going on at any FX trading desk, but a decline in the capital account trend will place more downward pressure on the dollar.