Reply #57: And we get the TICS tomorrow, things could get nasty for the buck [View All]

Dollar falls after record current account gap

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BDE02A4DE%2D6CBE%2D418C%2D8906%2D74E8B8E9F1CC%7D&tool=1&siteid=bigcharts&dist=bigcharts

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Worries over the long-term structural viability of U.S. debt financing sent the dollar to multi-year lows in late 2004, although the greenback staged a bull run in 2005, fueled mainly by the Federal Reserve's string of interest rate increases.

So far, the U.S. has been able to finance its current account gap on very favorable terms, allowing U.S. interest rates to remain low and in the process fueling consumption and investments, but the ability of the U.S. to finance its ballooning deficits remains a significant concern, analysts said.

"We had an extremely bad current account deficit number this morning," said Kathy Lien, chief fundamental analyst at Forex Capital Markets. "Trade is going to be a very big focus this week. The huge number that we had for the fourth-quarter deficit brings it even more to the forefront because now we got clear structural deficiencies."

She said the U.S. Treasury International Capital System data on foreign capital flows to be released Wednesday will be closely scrutinized for indicators as to whether capital inflows into the U.S. were sufficient to cover the trade deficit, which rose 5.3% to a new monthly record of $68.5 billion in January.

"There's a very high likelihood that we had another deficiency this month. If that's the case, you can easily see the euro shoot up to 1.20, and the dollar collapse as a result," she said.

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