The topic of the US Balance of Payments (BoP) has not received much coverage recently. The good news is that the current account deficit has shrunk and financial inflows more than cover it. However, the deficit has been significantly funded by foreign buying of long-term US debt securities – meaning there should be no room for complacency on fiscal policy.
Why is the US BoP important for FX?
We have not heard too much about the US current account deficit for quite a while. This is because unlike back in 2006 – when the US was running a deficit of 6% of GDP and the term ‘external imbalance’ was a hot one – the deficit is now a far more manageable 2.9% of GDP. And 2023 proved a good year for the deficit as exports improved relative to imports.
A smaller current account deficit is good news for the dollar and leaves it less vulnerable to the ‘kindness of strangers’, a problem that can occur when the…
