Sun, Jun 11, 2006 - Page 10 News List

Greenback ends week mixed on trade deficit numbers

AFP , NEW YORK

The US dollar traded mixed against the other major currencies on Friday after the US trade deficit came in lower than analysts had expected.

The euro eased to US$1.2640 at 2100 GMT from US$1.2651 late on Thursday in New York.

The dollar edged down to ?113.97 from ?114.18 on Thursday.

Data from the Commerce Department showed that the US trade deficit had risen in April to US$63.4 billion.

The figure was up from the March figure of US$61.9 billion, but lower than the Wall Street forecast of US$65 billion.

"The dollar derived some benefit from the trade numbers that didn't come in as bad as expected," said Neil Mackinnon, chief economist at ECU Group.

For much of this year, the US currency has been on the backfoot, partly because of the US current account deficit which is the equivalent to about 6.0 percent of the country's output.

Global Insight economist Brian Bethune said a close look at the report offered some encouragement, because the price of oil moved higher but the volume of imports was lower.

"This decline in the volume of petroleum product imports is a very welcome development, as it reflects stagnating domestic demand for petroleum products in response to the spike in prices," he said. "Underlying domestic supply and demand fundamentals in the petroleum markets appear to be improving."

Analysts noted on Friday however that markets were monitoring the Group of Eight (G8) meeting of finance ministers in St. Petersburg, Russia, over the weekend.

Energy issues were expected to top the agenda, with currency markets taking a backseat.

In the longer term, market players expected the US deficit to become more of a concern however, especially if the US Federal Reserve called a halt to its cycle of interest rate increases.

At the investment bank Calyon, senior currency strategist Mike Carey said he hoped the US trade deficit would improve as slower consumer spending trimmed import growth and a projected declines in the US dollar helped exports.

But until evidence of a sustained improvement emerged, the global interest rate outlook was tipped to dominate trading in currency markets.

ECU Group's Neil Mackinnon said that US inflation data due out next week would be crucial in determining whether the Federal Reserve raised its key Fed funds rate from the current 5.00 percent at its next meeting on June 29.

After 16 consecutive quarter-point rises, the Fed, under new chairman Ben Bernanke, has given mixed signals about its intentions ahead of this month's meeting.

Forecasts of an imminent Fed pause contrasted with predictions of tighter monetary policy from the European Central Bank and the Bank of Japan, and had prompted a sharp pullback in the value of the US currency this week.

Subsequent comments from US rate-setters, including Bernanke, have since rekindled speculation of a quarter-point rate rise from the Fed.

Divyang Shah, global strategist at IDEAglobal.com, said Bernanke and the Fed now have a credibility problem and "they are unable to effectively sell a pause and [could] instead potentially be forced into hiking at the end of the month."

In late New York trade, the US dollar stood at 1.2309 Swiss francs from 1.2318 on Thursday.

The pound was being traded at US$1.8403 late on Thursday.

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