Spending some time last week at the FX Week conference in Boston was well spent with some interesting speakers. One of the more interesting comments was that the US international finance position is like a hedge fund. The US is long equities around the world and finances with debt or borrowed money from around the globe. We have a fixed income liability and net equity surplus so the US in total has a risk-seeking portfolio.
The capital account for the US actually generates a higher rate of return than other countries because most of the investments are in equities while the amount paid to foreigners in debt is at the Treasury rate. Positive surprises around the world are good for foreign currencies because it will cause more risk-taking by the US as hedge fund. Risk-off signals will lead to more dollar gains because risk is taken back from around the world. It is not the only story about the behavior of the dollar that may fit the facts, but it is an interesting spin on global finance.
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