CIAO DATE: 11/2009
October 2009
Global capital flows dropped steeply in the wake of the financial crisis, with significant repercussions for real economy developments and a big impact on exchange rates. These effects now seem to be unwinding, with a strong rebound in capital flows over recent months. For some countries, inflows have returned to near pre-crisis levels and this should improve the chances of a solid economic recovery. The normalisation of capital flows has also been associated with a weaker dollar as 'safe haven' flows have reversed and dollar-based carry trades have resumed. But with rates low across the major economies, and likely to rise faster in the US than elsewhere, the dollar's role as a 'funding currency' may not last. On the bond market side, flows into US treasuries have remained quite strong, but are unlikely to be strong enough to prevent US bond yields rising steeply by 2011-2012.
Resource link: Global capital flows on the rebound? [PDF] - 212K