Currencies: Dollar Slips After News of Record Trade Deficit

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The dollar is still king in currencyland, but it's being knocked down a notch after the release of the U.S. international trade report, which showed a record trade deficit in September of $34.3 billion, much greater than expected. The dollar has weakened since the 8:30 a.m. EST release of the report, after earlier tacking on gains against the yen, euro and other major currencies.

The U.S. has long had a widening trade deficit; that is, the country is importing significantly more goods than it is exporting. That deficit had narrowed in August to $29.44 billion, but it grew once again in September, and economists were only expecting a deficit of $30.85 billion, estimates that turned out to be way off the mark. An increasing trade deficit weakens overall GDP and can undermine confidence in the economy, but generally it's not something foreign exchange analysts and government officials worry about, because of the U.S. economy's overall strength.

The dollar was lately trading at 110.01 against the yen, not far from an eight and a half month high against the yen. Overnight, it reached 110.24 before falling back somewhat.

"The record trade deficit is starting to weaken the dollar a bit," said Jamie Coleman, managing foreign exchange analyst at

IFR/Thomson Financial

. "It was much larger than expected this time; this one is eye-popping...but the dollar remains strong. This will probably be a short-term blip against the dollar."

Especially considering that the euro continues to be weak. This morning's IFO West German business index, an index of business activity and sentiment in the euro zone's largest economy, showed its fifth straight decline and fell to 97.2 in October, its lowest level in a year. (It was 98 in September.) A slowing economy in Europe would tend to shift capital away from that market, and continue to weaken the currency. Lately, the euro traded at $0.8479, down from the $0.8511 close yesterday. Meantime, the euro/yen cross lately traded at 93.34, down from 93.52 yesterday.

The Australian dollar is near all-time lows against the dollar, in part due to continued yen weakness, but also because of a

report from the

Organization for Economic Cooperation and Development

, which, according to wire reports, lowered its outlook for Australia for the near future. The report also believes overall global growth has peaked but that world economic prospects "remain relatively bright."

The Aussie was lately trading at $0.5102, down from $0.5106 yesterday. Sterling was also down, lately trading at $1.4190, vs. a close of $1.4224 yesterday.

The Canadian dollar is slightly stronger against its southern counterpart today. The U.S. dollar was lately worth C$1.5537, against C$1.5581 yesterday.

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