WEEKLY FINANCIAL REVIEW: Drop In Trade Deficit Isn't All Good News
Higher dollar along with weak economy is shrinking imports.
Bryce Knorr
Published: Jan 13, 2009
The dollar took a pounding over the past seven years, as budget and trade deficits mushroomed. The gap between federal government expenditures and revenues is growing beyond belief, as Washington scrambles to salvage the economy. But the trade deficit is actually shrinking, hitting its lowest level in five years according to data released on Tuesday.
The news rallied the U.S. dollar again in early trading, with the index trying to notch a breakout above both trendline and moving average resistance. The greenback was already moving higher two other fronts. First, weak economic data has investors buying dollars and trimming riskier bets, especially in commodities. Second, the market is bracing for more interest rates out of Europe, where the central bank is expected to cut rates a half point on Thursday. While rates there still are above those in U.S., the aggressive moves by the Federal Reserve have traders believing Europe is well behind the curve in trying to stimulate its flagging economy.
The trade deficit news, however, isn't cause for great celebration. The weak economy means U.S. consumers and businesses are importing less. Falling crude oil prices, while lowering production costs, also weigh overall on commodity prices, with the CRB index slumping last week, ending its brief dead-cat bounce.
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