The Current Account deficit hit a record -$195.1 Billion in the first quarter of
2005… … spurred by demand for higher priced oil and consumer goods from abroad. The
deficit is now running at a rate of 6.4% of GDP – a pace that requires an infusion
of $2.1 Billion of foreign capital per day. Combined the disappointing TIC data
reported on Wednesday which printed at only $47.4 Billion versus expectations of $57
Billion, the weak Current Account results are likely to weigh on the dollar and
contain any further rally. With oil prices continuing to trade above $55/bbl and
the dollar fully 10% higher against the euro since the beginning of the year, it is
plausible to imagine the Current Account deficit ballooning to -$200 Billion level
for the first time in history in Q2 of 2005.

The dollar's recent rally has been the direct result of euro weakness caused by
European political and economic problems while for the past two months the FX market
appeared to forget the persistent deficit woes of the United States. Today's larger
than expected gap in the Current Account may reawaken those concerns once more and
trigger a retrace in greenback's recent rally.

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