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US Dollar Rallies As Trade Deficit Sinks to Three-Year Low

January 7, 2020 at 15:02 by Andrew Moran

A sheet of US 100-dollar bills up to the horizonThe US dollar is gaining momentum on Tuesday as new data revealed that the trade deficit fell to its lowest level in more than three years in November. With the US and Iran conflict potentially peaking, investors are gradually returning to equities and the greenback, which is evident in the slump in crude oil prices. A better-than-expected reading in the purchasing managers’ indexes (PMIs) also enhanced the buck’s strength.

According to the Bureau of Economic Analysis (BEA), the trade gap narrowed to $43.1 billion in November, the lowest it has been since October 2016. This is down from the $46.9 billion in October and represents the third consecutive month of declines. The market had penciled in a $43.8 billion shortfall.

Imports tumbled 1% to a two-year low of $252 billion as the BEA reported slumping sales of aircraft, computers, and mobile phones. Exports rose 0.7% to $209 billion, driven by gains in sales of aerospace engines, automobiles, diamonds, jewelry, and oilfield equipment. Of course, the biggest development in the report is that the goods trade deficit with China slipped 15.7% to $26.4 as imports plummeted 9.2% and exports surged 13.7%.

The Johnson Redbook Index, a measurement of year-over-year same-store sales growth of large US retailers, slid 2.6% in the week ending January 4. This is slightly up from the 2.8% drop in the previous week. The index has advanced 7.2% YoY.

The US Census Bureau reported a 0.3% gain in factory orders in November, down from the 0.8% slide in October. There was a rebound in demand for transportation equipment, civilian aircraft, and electronics. However, there was a drop in orders for electrical equipment, appliances, and parts.

This comes after the IHS Markit composite PMI for December clocked in at 52.7 and the services PMI came in at 52.8. The better-than-expected figures were driven by better employment, a rise in new orders, and greater foreign business.

The US Dollar Index climbed 0.27% to 96.94, from an opening of 96.65. The greenback has weakened more than 2% in the last three months.

The USD/CAD currency pair soared 0.39% to 1.3018, from an opening of 1.2965, at 13:54 GMT on Tuesday. The GBP/USD fell 0.35% to 1.3122, from an opening of 1.3171.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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