MW: Dollar extends gains as U.S. trade gap shrinks
The dollar extended gains against most of its major counterparts Tuesday, after data showed the U.S. trade deficit narrowed in November.
The dollar "was stronger across the board versus the majors, with the exception of the yen, which outperformed yet again," wrote currency analysts at Brown Brothers Harriman in New York.
The U.S. trade balance with the rest of the world plunged by 29% to $40.4 billion in November on a record decline in oil prices and much weaker demand for imports, the Commerce Department reported. See Economic Report on U.S. trade deficit.
"The 6% decline in U.S. exports is another sign of slowing global growth in the face of weakening global currencies against the US dollar," said Ashraf Laidi, chief market strategist at CMC Markets, in a note to clients Tuesday.
The dollar index , which measures the U.S. currency against a basket of six major counterparts, stood at 84.212, up from 83.536 earlier Tuesday, and 83.105 in late North American trade on Monday.
Stephen Gallo, head of market analysis at Schneider Foreign Exchange, cited the U.S. Federal Reserve's "extremely proactive approach that has jam-packed the global financial system full of dollar liquidity."
Earlier Tuesday, Federal Reserve Chairman Ben Bernanke spoke in London on ways to tackle the crisis and shore up economies. Read The Fed.
Bernanke said there will be no lasting recovery without further government action and funds to strengthen the financial system, and repeated the U.S. central bank could buy longer-term Treasurys to keep loan rates low.
Over the longer term, 2009 could prove volatile as markets assess the contrasting approaches taken by central banks in response to the financial crisis, Gallo said.
Skepticism ensnares euro
Financial markets await the European Central Bank's meeting Thursday on euro-zone interest rates. The ECB's key lending rate now stands at 2.5%. Most economists expect the central bank to order up a reduction of half a percentage point, or 50 basis points.
Currency markets were skeptical of the euro "at the start of 2009, and the credit headlines on European governments only reinforces this euro-skeptic market attitude," wrote strategists at KBC Bank in Brussels.
Looking out over the longer term, "we continue to have serious doubts on the chances of a protracted dollar rebound," but short-term momentum is increasingly negative for the euro against the dollar, they said.
"Euro sentiment deteriorated further on the break of $1.3240, which points to a retest of the October low of $1.2331," the Brown Brothers Harriman analysts said.
Against this backdrop, the euro slipped to $1.3187 from $1.3373 in late North American trading Monday. The single currency also fell to 117.49 yen, down from 119.09 yen.
The yen also gained slightly against the dollar, with the U.S. unit buying 89.11 yen, compared to 89.06 yen late Monday.
The British pound was under pressure against both the dollar and the euro, with foreign-exchange traders playing off the British Retail Consortium's monthly survey that showed that U.K. retailers endured the worst December in at least 14 years.
