Dollar gains on Trade Deficit

A rather startling drop in the February Trade Deficit sent the dollar on a war path against the other currencies. The Trade Deficit for February dropped $10 billion, going from $36 billion to $26 billion. In addition, Imports dropped 5.1% and Exports actually went up. Export strength is a side effect of the stronger dollar. We told our iFXG readers last month that we are bullish on the Dollar -  a somewhat contrarian view since all the media have been calling for a dollar collapse.  Yes, we agree, the fundamentals are awful – but it is all relative. Choose the pile of garbage that stinks less! The dollar buying that occurred as a result of the trade deficit figures is in all likelihood not grounded on any scientific or economic principal. It’s merely people thinking that the new number must mean the US economy is on the mend. And, as with all investing, market psychology is the driver.   Add to this the fact that the Euro Zone recorded its largest EVER decline in the 4th quarter of 2008 and the US Dollar still being a save haven in trouble times, it all points to a stronger dollar. The US will recover before the EU recovers. In fact, the Euro has not merely declined against the dollar, its declined against most major currencies. Finally, we have a triple play – not only do we have positive trade figures, a weakening EU – we also had better than expected unemployment claims coming out from the US. This triple play of good news was all that was needed to send the dollar up over 2.8% against the Euro this week.     < Prev