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Friday 30th of July 2010
March 14, 2006

Current account deficit hurts US dollar

Story link: Current account deficit hurts US dollar

The US dollar declined in value on Tuesday on the release of current account deficit data from the fourth quarter of last year, and on a prediction that interest rates in the US could peak at 4.75 to 5 percent.

Investors did not seem to take the current account numbers into consideration last year as the dollar gained 15 percent versus the euro and the yen, but these new numbers, which showed that the fourth quarter current account deficit totaled 7 percent of the gross domestic product triggered some selling of the dollar. One analyst called attention to the fact that this is twice the 3.5 percent of the GDP in 1985 which spurred the G7 to devalue the dollar.

The greenback lost 1.2 percent to ¥117.36 against the Japanese currency. It lost 0.9 percent versus sterling to $1.7475, dropped 0.8 percent in relation to the Swiss franc to SFr1.301, and declined 0.5 percent to $1.2020 against the euro.

Elsewhere, the euro declined versus sterling and the yen on the news that the ZEW index of investor sentiment in German had dropped to 63.4 in March, down from 69.8 in February and against expectations of a rise to 71. The decline in sentiment was blamed on rising interest rates around the world.

The euro dropped 0.3 percent to £0.6879 versus sterling and lost 0.7 percent in relation to the yen, to ¥141.10.

The yen, meanwhile, strengthened to ¥204.98 versus sterling and added 1.2 percent to ¥86.34 in relation to the Australian dollar after a US Treasury official warned Japan not to attempt to create a weak yen by keeping interest rates artificially low.

No growth in retail sales in New Zealand in January, when a rise of 0.6 percent had been expected, sent the New Zealand dollar down against the US dollar again. The kiwi dropped another 0.5 percent to $0.6392 versus the greenback, a seven-month low.

 

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