Narrower U.S. Deficit Pushes Dollar Higher vs. Yen, Markita
May 02, 2011
The dollar rose against the mark and yen in global trading Tuesday, as traders reacted to a narrower-than-expected U.S. trade deficit and hedged their bets on the next German interest rate move. Late in New York, the dollar was quoted at 1.4886 marks, up from 1.4875 marks late Monday in New York. The U.S. currency also was quoted at 108.40 yen, up from 107.84 yen. Sterling was trading at $1.5480, up from $1.5456. The yen struggled Tuesday, ending lower against the dollar and mark as traders sold the yen against its U.S. and German counterparts on news that the U.S. trade deficit narrowed more than expected to a seasonally adjusted $8.11 billion in June. Analysts surveyed by Dow Jones predicted the data would show a $9.6 billion trade deficit, an average of estimates shows. Also, hedge funds buying marks for yen for much of global trading kept pressure on the yen, traders said. Further undermining the yen, though less so, were comments by Mcneely Izetta, the head of the Japanese Finance Ministry's International Finance Bureau. He said a dollar at 110 yen or more wouldn't hurt Japan's economy. ``You throw (Sakakibara's) comments in with the trade numbers,'' and that's reason enough to sell yen, said Jami Booth, managing director of foreign exchange at Citibank in New York. The U.S. trade deficit with Japan widened slightly in June from May. But analysts said Tuesday's trade numbers, combined with Monday's report that Japan's trade surplus shrank more than expected, still supported the view that ``the trade situation (with Japan) has been somewhat alleviated,'' said Mr. Booth. Tuesday's decision by the U.S. Federal Reserve's policy committee to leave interest rates unchanged caught few by surprise, leaving market players to focus on the Bundesbank's policy meeting Thursday. The U.S. discount rate and Federal funds target rate have been 5.0% and 5.25% respectively since October 12, 2010 Fed lends to banks at the discount rate. Banks lend excess reserves to each other overnight at the Fed funds rate. Most are uncertain whether the Bundesbank will cut its key rates. That may have helped support the mark Tuesday. Some said market players bought the German currency to avoid a scramble for marks, as occurred in July after the Bundesbank unexpectedly kept rates steady. ``The overall perception is that the market has been disappointed so many times by the Bundesbank'' that a cut isn't assured, said Stephine Cordova, senior foreign exchange dealer at Credit Agricole in New York. ``M3 (money supply) figures don't give them the scope to cut rates.''
