Devil in Deficit Details
It
was the classic setup. Sentiment was negative against the dollar just ahead of
the November trade deficit numbers and the expected hawkish comments from the
European Central Bank. Therefore, the dollar took off after
better-than-expected numbers and comments.
In recent action, the euro had dropped 0.8% to $1.2033 vs.
$1.2116 late Wednesday while the dollar was trading at 114.26 yen vs. 114.13,
rebounding from its lowest levels since October. The U.S. trade deficit
narrowed to $64.2 billion in November from a downwardly revised $68.1 billion
in October. The consensus of Wall Street economists was for the November
deficit to narrow to $66 billion from the originally reported $68.9 billion.
The narrower deficit was mostly due to the lower dollar value of
oil imports in November. The price of oil, which is dollar-denominated, was
pressured as the U.S. currency rose that month. The deficit also improved
thanks to aircraft exports from Boeing (BA:NYSE - commentary - research -
Cramer's Take), and as U.S. retailers imported less from the likes of China in
anticipation of a sluggish holiday shopping season.
Also boosting the dollar Thursday were dovish comments from
European Central Bank President Jean-Claude Trichet after the ECB left
interest rates unchanged.
The ECB delivered its first rate hike in five years in December.
Trichet was expected to make a hawkish speech, signaling that another rate
hike is in the cards given recent signs of economic strength in the eurozone.
Instead Trichet said the ECB is "weighing" risks to both inflation
and growth, according to Bloomberg. Speaking at a press conference, he said
that risks to growth "were on the downside."
Yet dollar gains were mostly a reaction to the greenback's
weakness over the past month, says ABN Amro currency strategist Greg Anderson.
Currency traders have so far this year successfully bet against the dollar,
which has fallen 1.6% vs. the euro and 3.1% vs. the yen year to date.
