Dollar Slammed by Trade Data
Jun 20 10:43am ET
By Daniel Bases
NEW YORK (Reuters) - The dollar was slammed on Thursday by a record U.S. trade gap in April and first quarter current account deficit data that catapulted the euro to a two-year high above 96 cents, and put its gains for the year against the dollar above 8 percent.
The dollar fell sharply across the board as the record-breaking data means it will take even more capital to flow into the United States to make up for dollars sent abroad to purchase imports demanded by a U.S. economy on the rebound.
Widening deficits have been exacerbated by the decline in investors' appetite for U.S. assets, leading to sharp declines in U.S. stocks, a pattern that continues to compound the negative view of the dollar.
"The trade and current account data combined with the break above the (euro's) resistance area at 95.95 cents are pulling together to work against the dollar," said Bob Lynch, currency strategist at BNP Paribas in New York.
The euro, already on the uptrend, hit a two-year high of 96.37 cents after the U.S. Commerce Department reported the April U.S. trade gap in goods and services widened to a record $35.9 billion.
The U.S. current account deficit -- the broadest measure of trade with foreign countries -- hit a record $112.5 billion, up sharply from a revised estimate of $95.1 billion in the last quarter of 2001, as the U.S. economy shows signs of recovery.
"It's a perverse deal, because (the deficit) means the U.S. economy is pretty strong domestically. But right now we're worried about capital flows, which are also being discouraged because of the geopolitical situation and the crisis in the Middle East," said Mike Malpede, senior foreign exchange analyst at Refco Group in Chicago. In early New York trade, the euro traded at 96.26 cents, a 0.53 percent gain compared with Wednesday's New York close.
In the futures market, September euros notched yet another contract high at 95.92 cents.
The Swiss franc, which has risen in the wake of geopolitical tensions in the Middle East and the war on terrorism, made a fresh 29-month high of 1.5252 francs against the dollar, up from Wednesday's late New York 1.5353 francs level.
Sterling surged to a new 17-month high of $1.4974 , a gain of more than 0.25 percent on the day.
The dollar garnered little support from a weak opening on Wall Street. The Dow Jones industrial average <.DJI> and the S&P 500 stock index <.SPX> were off 0.4 percent, while the Nasdaq Composite index <.IXIC> was down almost one percent.
YEN HEMMED IN
The dollar fell to 123.49 yen , off 0.27 percent on the day, but analysts said investors were wary of buying yen too aggressively given the Japanese government's penchant for intervention, demonstrated on four separate occasions in the last four weeks. They last intervened on June 4.
September yen futures prices scored a fresh two-week high of $0.008136.
Senior Finance Ministry official Zembei Mizoguchi continued efforts to talk down the yen on Thursday morning. Mizoguchi said the yen was not in a situation to rise, reiterating that stable currency movements were desirable.
"The further we go below 124 (yen), the greater the risk of intervention," said Mitul Kotecha, head of foreign exchange research at Credit Agricole Indosuez.
Paribas's Lynch said the euro's strength against the yen was also tempering the yen's gains against the greenback.
The euro traded at 118.85 yen , up 0.26 percent on the day.
SECURITY NERVES
A brief evacuation on Wednesday of the White House as an unidentified aircraft circled Washington and rising tension in the Middle East has knocked dollar sentiment further.
"We've seen renewed weakness in U.S. equities. The bombings in Israel, the evacuation of the White House has heightened the intensity of nervousness," said Kotecha.
Although the White house evacuation proved to be a false alarm, dealers said the scare underlined security fears and weighed on U.S. assets.
Escalating tension in Israel following another suicide bombing on Wednesday and a car bombing in Saudi Arabia that killed a British banker on Thursday added to the gloom.
"There are concerns about corporate earnings but security fears can be one reason why people are reluctant to invest in the U.S.," said Julian Jessop, chief European economist at Standard Chartered.
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