Sun, Jun 20, 2004 - Page 10 News List

US deficit pushes the dollar down


The dollar wilted here against the euro following news that the US current account deficit widened to a record US$144.9 billion in the first quarter from US$127 billion in the final three months of last year.

The single European currency in late-day trade was at US$1.2118 against US$1.2060 late in New York on Thursday.

The dollar was at ¥108.65, down from ¥109.52 on Thursday.

"The worse-than-expected figure pushed the dollar down especially against the yen and euro," said Gary Noone at Informa Global Markets.

The dollar had been on the back foot most of the day, but the data accelerated its decline, taking it to a six-week low against the yen and lifting the euro more than one US cent to above US$1.21.

Markets had been braced for a big shortfall after the record US trade gap revealed last week, but consensus had pointed to a current account gap of around US$141 billion.

For the moment, with little else on the data calendar, market preoccupation with the prospect of US interest rate hikes receded slightly.

Still, a quarter-point hike on June 30 is widely expected, while speculation of a more aggressive increase has eased after US Federal Reserve Chairman Alan Greenspan hinted at small increases at a "measured" pace.

Elsewhere, the pound shrugged off signs that runaway mortgage lending may at last be coming under control to register modest rises against the dollar.

Economists do not believe the moderation in May signals the hoped-for slowdown that may persuade the Bank of England to back away from delivering more interest rate hikes.

Another quarter-point rise in August is widely predicted, taking the number of similar increases since November to five and the benchmark repo rate to 4.75 percent.

"It remains too early for signs of a clear housing market slowdown, especially considering that policy rates -- at 4.5 percent -- are not yet constrictive," Ciaran Barr at Deutsche Bank said.

Separately, the Norwegian krone slipped against the euro and dollar. The former closed in on the 8.40-kroner level while the latter inched closer to 7.0 after news that Norway's oil workers are going on strike after failed wage negotiations.

The strike will lead to a 13 percent drop in the world's third-largest exporter's oil production and may well have a negative impact on the country's wider economy.

The euro was changing hands at US$1.2118 from US$1.2060 late on Thursday in New York, ¥131.69 (¥132.02), £0.6597 (£0.6567) and 1.5072 Swiss francs (SF1.5086).

The dollar stood at ¥108.65 (¥109.52) and SF1.2438 (SF1.2509).

The pound was at US$1.8369 (US$1.8354), ¥199.57 (¥200.98) and SF2.2851 (SF2.2962).

On the London Bullion Market, the price of an ounce of gold stood at US$395.10 from US$386.10 late on Thursday.

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