Currencies
Dollar rises as report shows trade deficit drop
The Associated Press
01/13/09 - 01:33 PM EST
The dollar rose Tuesday after the government said the U.S. trade deficit fell to its lowest level in five years and investors anticipated a rate cut this week from the European Central Bank.
The 16-nation euro bought $1.3228 in midday New York trading, down from $1.3395 late Monday. The British pound dropped to $1.4585 from $1.4843 it bought late Monday. The dollar inched up to 89.77 Japanese yen from 89.07 yen.
The Commerce Department said Tuesday the trade deficit narrowed 28.7% to $40.4 billion in November from $56.7 billion in October as demand for oil dropped by a record amount.
Though demand for imports has dropped, investors are more concerned by the waning appeal of American products overseas, as economies around the world suffer. The fear is that as companies struggle with falling global demand, it will be more difficult for the economy to rebound.
The European Central Bank is widely expected to reduce its interest rate from the current 2.5% when it meets Thursday.
The Bank of England cut its rate last week by half a%age point to 1.5%, the lowest level in the bank's 315-year history. The British economy has been battered by a housing crisis and a string of failed retailers.
Most of the other major world economies, including the U.S. and Japan, have already ratcheted rates down to near zero. Lower rates can help jump-start an economy, but weigh on a currency as investors seek higher returns elsewhere.
Investors were also anxious ahead of the Federal Reserve's beige book, its assessment of the economy by region. The report, which will be released Wednesday, provides details about the strengths and weaknesses in each part of the country.