Dollar Jumps Against Major Currencies
Wednesday May 11, 3:53 pm ET
By Malcolm Foster, Associated Press Writer
Dollar Jumps Against Euro, Other Major Currencies on Smaller-Than-Expected U.S. Trade Gap
NEW YORK (AP) -- The dollar rose against the euro and other major currencies Wednesday after the U.S. reported a much smaller than expected trade deficit in March.
Imports to the U.S. exceeded exports by $54.99 billion, less than the $62 billion that economists had predicted and down from a record monthly deficit of $60.57 billion in February. That means fewer dollars in the hands of companies that export goods to the United States, increasing demand for dollars.
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"It's a significant surprise, better than everyone expected. Everyone's buying dollars right now," said Thomas Stolper, global markets economist at Goldman Sachs in London. "But $54 billion is still a large deficit by all historic standards, and we don't think this movement is sustainable. We project further dollar weakness."
As the dollar rose, the euro fell to $1.2807 from $1.2870 in New York late Tuesday. The dollar climbed to 105.74 yen from 105.53.
The British pound fell to $1.8713 from $1.8822 the previous day after the Bank of England said it expected inflation to accelerate beyond its 2 percent target in the near term before falling back to the target in the first half of 2006. The central bank also trimmed its growth forecast for the year amid signs of a slowdown in consumer demand.
Earlier, the yen jumped against major currencies -- sending the dollar down to 104.92 yen -- after a report on the Web site of the Communist Party newspaper People's Daily that fed speculation that China would soon revalue its currency, the yuan.
The report, a translation of an article published in Hong Kong on May 7, was removed from the Web site, and a spokesman for the People's Bank of China, the central bank, said the material did not originate from the central bank.
The writer of the article that caused all the commotion, a Hong Kong-based journalist working for the China News Service, told Dow Jones Newswires that she was merely discussing the impact of a possible revaluation on Hong Kong, not reporting any change in Chinese policy.
Expectations for the yuan's future value surged briefly to record levels in the non-deliverable forwards market, a barometer of future expectations that does not affect the currency's actual value. China strictly limits trading in the yuan and has kept its value pegged at about 8.28 per U.S. dollar for more than a decade.
A government report Wednesday said China's exports would contract sharply if the value of the Chinese yuan rose -- the latest apparent signal that Beijing is not about to make any major changes in its currency policy.
"It's interesting to see how markets reacted, but it doesn't seem to be any hint of the government's plans," said Stolper.
Many traders expect China will make its exchange rate policy more flexible sometime this year -- perhaps by widening the band within which the yuan is allowed to trade -- and indeed Chinese officials say they are working on reforming their currency system.
Should that happen, analysts expect the yuan to appreciate against the dollar -- and lift the yen and other Asian currencies with it because of the close trade and economic ties within the region.
"People do think of the region as a whole," Stolper said. "It's consistent with idea that whole of Asia should revalue."
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