USD Immune to Record Deficit Wednesday, September 13, 2006
The dollar was higher against the euro and yen in New York trading, pushing the single currency beneath the 1.27-handle while edging up toward the 118-level against the yen. A clear direction in the foreign exchange market has yet to emerge given today’s disconnect between US economic data and the dollar’s movements. In spite of a worse-than-expected July trade deficit, the greenback managed to remain near 4-month highs versus the yen and multi-week highs against the euro.
Although the immediate reaction to the larger than forecast US trade deficit was selling of the dollar, the weakness was unsustainable. Markets were anticipating for a slight increase to $65.4-bln in July compared with $64.8-bln from June. Instead the deficit ballooned to a record $68-bln, with US exports decreasing for the first time in 7-months down 1.1%. The record deficit in July was partly attributed to higher oil costs for the month. Oil prices have since eased off its high levels and the dollar’s recovery in the session may reflect traders factoring in weaker energy costs in next month’s reporting.
The key economic report slated for release this week will be Friday’s consumer price inflation data. The August CPI report is forecasted to remain tame, with the headline monthly figure down to 0.2%, from 0.4%, while the core CPI is seen unchanged at 0.2%. However, on an annualized basis the core CPI reading is expected to creep up 2.9% from a year earlier at 2.7%.
Although the immediate reaction to the larger than forecast US trade deficit was selling of the dollar, the weakness was unsustainable. Markets were anticipating for a slight increase to $65.4-bln in July compared with $64.8-bln from June. Instead the deficit ballooned to a record $68-bln, with US exports decreasing for the first time in 7-months down 1.1%. The record deficit in July was partly attributed to higher oil costs for the month. Oil prices have since eased off its high levels and the dollar’s recovery in the session may reflect traders factoring in weaker energy costs in next month’s reporting.
The key economic report slated for release this week will be Friday’s consumer price inflation data. The August CPI report is forecasted to remain tame, with the headline monthly figure down to 0.2%, from 0.4%, while the core CPI is seen unchanged at 0.2%. However, on an annualized basis the core CPI reading is expected to creep up 2.9% from a year earlier at 2.7%.
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