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Deal Money Deserts the Dollar

Wednesday, 4 May 2011 | 5:01 PM ET
Burazin | Getty Images

Think the dollar's weak now? Upcoming M&A deals sure aren't going to help matters.

Currency markets aren't just influenced by day-to-day trading. There are also massive transactions, often cross-border M&A, that involve buying or selling billions in different currencies. And - surprise! - the outlook for cross-border M&A suggests that billions in deal-related selling of the dollar lies ahead.

In the next six months, the cash component of dollar outflows for deals over the next six months, adjusted for probability, will probably reach $41 billion, or 1.2% of the U.S. GDP, according to new research from Nomura Securities. That's the largest by far of the countries they measured. The net announced cash outflow related to upcoming deals is $56 billion.

The eurozone, on the other hand, should see a net inflow of $26 billion over the same period, or 0.8% of eurozone GDP. The net announced cash piece of deals over next six months is an inflow of $37 billion, which can't hurt the euro.

"The verdict after April is that both completed flows, and the shift in the future pipeline was USD negative," wrote Jens Nordvig, Nomura's global head of G10 FX strategy. "This is the worst reading in almost a year."

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