Thursday July 14, 2005 - 09:39:58 GMT
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INVESTICA Ltd - www.investica.co.uk
Focus on US growth and inflation
The US dollar was little changed ahead of the US trade data, but managed to secure a further recovery against the Euro after the data was released. The dollar strengthened to a high of 1.2080 in New York and was holding just stronger than this level in early Europe on Thursday.
The US trade deficit was slightly below expectations at US$55.3bn for May from US$56.9bn the previous month. There was a small increase in exports of 0.1% to record levels while there was a 0.9% decline in imports. Oil imports fell slightly for the month to US$18.6bn from US$18.9bn the previous month. The lower deficit will tend to generate a small increase in second-quarter GDP estimates. There will, however, be concerns over the June figures, especially as there has been an increase in oil prices and there was also a reported increase in the June China trade surplus.
The US currency has been weakened over the past two years by fears over the twin US deficits with the budget deficit compounding fears over the trade position and the budget data was also favourable on Wednesday. There was a US$22.4bn surplus for June, the best June figure for three years and the administration has been able to cut the fiscal 2005 forecast to US$333bn from US$427bn previously on high tax revenue. The revisions will ease immediate budget fears, but also illustrate how sensitive the deficit is to relatively small changes in growth rates. There will, therefore, be serious implications if the economy slows. The US consumer inflation and retail sales data today will, therefore, be important for the economy and market interest rate expectations.
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