Brian Holmes on Sat, 20 Jul 2002 22:06:25 +0200 (CEST)

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<nettime> Re: Deflation, anyone?

Here's a short piece from the BBC World news business section, on the
falling dollar, which they relate directly to the rising trade gap, but
above all to the plummeting NYSE.

A few years ago some wise guy found a great title for his investor bible:
THE DOW AT 35,000. Get your copy fom Amazon - before either or both are


Friday, 19 July, 2002

Dollar falls on record trade gap

The US dollar continued to weaken on foreign currency markets as US trade
deficit soared to a record $37.6bn in May. Imports soared to $118bn as
Americans snapped up foreign-made cars, TVs and clothes.  The deficit rose
by 4.1% higher in May, with imports growing at twice the pace of exports,
the Commerce Department said. Exports rose by just 0.7% to $80.6bn, as the
weakness in the world economy restrained export growth.  The trade gap
with China widened to $8.1bn, showing China was still benefiting from its
membership of the World Trade Organisation.

Dollar under pressure The announcement further undermined the dollar,
which has weakened in recent weeks as shares have plunged amid fears of
corporate scandals.  The euro rose to a level of $1.0155 shortly after the
data was released.  The weaker dollar in turn raised expectations of
another gloomy day for shareholders.  "The dollar is the focus of
attention of a lot of investors right now," said Gary Thayer, chief
economist at AG Edwards in St Louis.  "If the dollar had held up well,
that would have been a good development for stocks."  The dollar also
weakened against the yen, which was trading at a level of 115.64 to the
dollar shortly after the news.  The strong yen puts in jeopardy the
prospects for an export-led recovery in Japan, and may lead the Japanese
central bank to intervene further to try and weaken its currency.

Financing the gap 

The US has been running a huge trade deficit for several years, but up to
now it has avoided a run on the dollar because foreign investors were
happy to make up the shortfall by buying US stocks and bonds.  But the
falling US stock markets have made foreign investors reluctant to put more
money into the pot.  In the long run, the weaker US dollar should boost US
exports by making them cheaper and more competitive - but that could take
years to come about.  Meanwhile, the huge trade deficit is adding to
protectionist pressures in the US Congress, which is considering a bill to
allow the President enhanced authority to negotiate a new trade deal.

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