We in the United States have been incurring ever larger trade deficits, with the broader current account measure having reached 5 percent of our gross domestic product (GDP). Yet the dollar’s real exchange value, despite its recent decline, remains close to its average of the past two decades.
This suggests that the degree to which investors – both from the euro area and abroad – were rebalancing their portfolios from euro area to foreign sovereign paper was significantly driven by the availability of euro area bonds (net of the purchasing requirements of the Eurosystem under the APP).