Foreign investment in US assets declined in July, but was still sizable enough to offset the US current account deficit.
Net inflows of capital totalled $64.0 billion in July, compared with an upwardly revised $74.0 billion in June, a Treasury Department report released on Thursday showed. Initially, June net inflows had been reported at $71.8 billion.
Purchases of net domestic securities, a narrower measure that excludes transactions between US residents and foreigners in foreign stocks and bonds, dipped to $80.1 billion in July compared to $85.3 billion in June.
The dollar gained slightly in the wake of the report. The euro initially slipped to $1.2140 from about $1.2150 shortly prior to the report's release. Against the yen, the dollar inched up to 109.68 yen, from about 109.65 yen prior to its release.
Currency traders had focused closely on the asset flows report on the heels of data released on Tuesday showing that the US second quarter current account deficit - the broadest measure of the nation's global trade - had widened to a record $166.18 billion in the second quarter.
"The report should be modestly neutral for the dollar. Although it was a drop from the June figure, it was just sufficient to cover the current account deficit as well as our net FDI (foreign direct investment) deficit" said Michael Woolfolk, senior currency strategist with the Bank of New York.
A widening current account gap increases the US reliance on portfolio inflows to offset that deficit.
If Americans continue to buy foreign goods faster than US businesses can sell their goods and services overseas, the outflow of dollars will remain heavy, putting pressure on the currency.
The asset flows data are notoriously difficult to forecast, but analysts had estimated the net inflows could be between around $60 billion and $80 billion. Strategists had said that any net inflow of less than $50 billion was likely to hurt the US currency.
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