BNY's Geoff Yu, as reported by FXStreet, analyzed the resilience of private capital flows into U.S. assets, including Treasuries and equities, during the major supply shocks of 2022–2023, even as trade surpluses in the Asia-Pacific (APAC) and Europe declined [1]. The report emphasizes that the U.S. Dollar (USD) remained supported by these private inflows, with reserve managers' aggressive FX sales during risk-off periods also providing temporary support due to currency rebalancing [1].
However, Yu warns that the USD could come under pressure if semiconductor-related supply constraints emerge, as these could curb private inflows into U.S. assets. In such a scenario, there would be limited offset from official flows, especially while global trade surpluses remain subdued [1]. The report further notes that swift liquidation of dollar-denominated assets, such as U.S. Treasuries, could directly impact U.S. asset prices, and tighter financial conditions from higher yields would add pressure to U.S. equity markets [1].
Looking back, the report highlights that, despite pronounced liquidity stress during the pandemic, the U.S. did not experience massive liquidation flows in 2022, according to Treasury International Capital figures. Private flows into the U.S. remained consistently strong from 2021 onwards, and the 2022 supply shock did not disrupt capital recycling into the U.S. from external savings, even as APAC and European surpluses declined [1]. Instead, global surpluses shifted from APAC/Europe to petro-producers, but these funds ultimately flowed into U.S. asset markets, which continued to offer strong performance [1].
The report concludes that a significant risk to the current tech/AI-led U.S. outperformance narrative would be an acute shortage of goods required for semiconductor production, driven by supply-chain and logistics disruptions. If this risk materializes, the dollar could face significant pressure as private capital inflows ease, with no compensating official flows while trade surpluses remain low [1].
CONCLUSION
BNY's analysis underscores the resilience of private capital flows into U.S. assets despite global supply shocks and shifting trade surpluses. However, the report cautions that semiconductor supply constraints could pose a significant risk to the USD if they dampen private inflows, especially in the absence of strong official flows or robust trade surpluses.