Wolfgang Munchau: The dollar has fallen enough

FT.com / Comment & analysis / Columnists - Wolfgang Munchau: The dollar has fallen enough: "A more detailed analysis suggests that the trade adjustment channel is still more important than the financial adjustment channel. But the financial adjustment channel presently acts as a kind of automatic stabiliser. As long as foreign investors, especially foreign central banks, are willing to hold US assets, the dollar's exchange rate does not need to devalue by as much as would have been the case if all the adjustment had to come from trade alone. Put another way, the sustainable current account deficit may be higher than otherwise thought.
Changes in the financial adjustment channels occur primarily through the exchange rate, and it is therefore tempting to ask the question: can we predict future exchange rates by looking at the ratio of net exports and net foreign assets? Econometric analysis suggests that this may indeed be so. "