User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday November 14, 2005 - 11:28:01 GMT
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets

Share This Story:
| | Email

Forex: How long can the US dollar ignore the trade deficit?

Economics Weekly: How long can the US dollar ignore the trade deficit?

Record US trade deficit, yet a stronger dollar!
The parlous state of the US trade deficit should not pass without comment in a month that it reached yet another record level. It is perhaps easy to forget that a year ago the US trade deficit was $51.9bn per month. The year before that it was $41.6bn and in September 2002 it was just $36.8bn a month. Now, it is running at $66bn a month, an 80% increase on 2002, and yet this year the currency seems to be shrugging it off, see chart A. What is going on?

Currencies are influenced by many factors
There are a large number of factors that influence exchange rates. Many are well known, ranging from inflation, interest rates (short and long term), economic growth, trade and current account balances, fiscal deficits and equity market flows. Others are perhaps less well known, such as political risks, exchange rate intervention, commodity prices, risk aversion and productivity differences, to name a few.

US trade deficit is being ignored...
At any particular moment either one or other of these may be the key determinant of the exchange rate of a particular currency. In a survey conducted by Consensus Economics in August 2005, 250 foreign exchange rate forecasters were asked to rank in importance the factors they judged to be affecting the exchange rate of a number of currencies against the US dollar. Table 1 shows responses for the factors voted to be the key drivers of the dollar against euro, sterling, Japanese yen and Canadian dollar. It can be seen that the highest ranking factor at the time, on average, is differences in short term interest rates. This is closely followed by differences in trade balances and investment flows, driven by differences in long term interest rates and by equity market flows.

Fiscal deficits can matter greatly for a currency, but budget deficits are worsening in all of the major economies and so they have not played a big role in the rankings shown in table 1.
However, this may also be because the bond yield differential may be picking up perceptions about the relative state of fiscal positions. As chart B confirms, an important part of the current profile of dollar strength seems to be that interest rates are rising faster in the US than in any of the other major economies at present. This is true not just of short term interest rates, but also of longer term interest rates, including ten year bond yields. This is giving a higher return to foreign holders of US assets at current exchange rates and as such will remain a powerful underpinning of the US exchange rate as long as it persists and markets are driven more by it than any other factor.

Growth and interest rates are key drivers...
In order to help assess the factors underlying the strength of the US dollar, we look at the UK’s performance on three key measures as a proxy, interest rates (long and short) and economic growth. The charts, B and C, show that although the direction of the US trade deficit suggests that the currency should fall, interest rate and growth are powerful enough factors together to offset the negative impact of the trade deficit. That, in a nutshell, seems to be the story. However, this does not mean that the dollar will not weaken at all. It is actually very vulnerable to any deterioration in the factors that are underlying its relatively strong performance.

..but attention will switch back to the trade balance at some stage
In particular, the US $ appears very vulnerable to whenever US interest rates stop rising or interest rates increase in other countries. As chart A shows, over time, the dollar does actually respond to the trade deficit. This current period is actually the odd one out, due, as table 1 highlights, to the sharp rise in interest rates and the growth outperformance of the US economy at present. Hence, it appears the challenge for forecasters is in calling the end of the dollar run correctly; a cessation of interest rate hikes or weaker economic growth in the US may have to be the essential triggers for any sustained dollar weakness.

..Conclusion
What underlies the fast growth of the US? The real answer appears to be that US productivity is outstripping that of the rest of the world’s other major economies. As long as that continues, then it is possible for the US to avoid a currency crisis, but that does not mean the currency will not depreciate, just that it should not collapse. The question for financial markets as we approach 2006 is, when will the dollar correct? The question for policy makers is, will it be to the detriment of the world economy?

..
UK data this week may be overshadowed by the bank of England's quarterly Inflation Report, which will be scrutinised for clues about the next move in interest rates. Figures out in the week may be contradictory. Producer price inflation on Monday could show a fall back, as oil prices recede from their highs. Consumer price inflation, on Tuesday, could also show a fall back from September's figures, though that will not mean that the threat from earlier increases in input prices is over. Inflation on our forecast remains at 2.5% in the year, still well above the 2% target. Data for the labour market, on Wednesday, are likely to show that wage inflation is still subdued at 4.2% and unemployment on the claimant count may rise for a ninth month in succession. Moreover, retail sales, which bounced by 0.7% in September, could fall back in October, though that is not our central forecast. On Friday, attention will be on the borrowing data; is slow growth hitting government tax revenue or is the rise in oil company profits offsetting it? Fast growth in M4, the broad measure of money, is likely to continue, suggesting that economic recovery can be easily financed.

Trevor Williams, Chief Economist
trevor.williams@lloydstsb.co.uk
www.lloydstsbfinancialmarkets.com
Lloyds TSB Bank,
Financial Markets
Division,
Faryners House,
25 Monument,
London EC3R 8BQ
Switchboard:
0207 283 - 1000

Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 11 December 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Tue 12 Dec
09:30 GB- CPI
10:00 GB- ZEW Survey
13:30 US- PPI
Wed 13 Dec
00:30 AU- Employment
09:30 GB- Unemployment
13:30 US- CPI
15:30 US- EIA Crude
19:00 US- Fed Decision
Thu 14 Dec
07:30 CH- SNB Decision
All Day- Global- flash PMIs
12:00 GB- Bank of England Decision
12:45 EZ- ECB Decision
13:30 US- Retail Sales
13:30 US- Weekly Jobless
14:45 US- Industrial Production

Forex Trading Outlook


Potential Trading Opportunities

  • POTENTIAL PRICE RISK: Mediun Tue--10:00 GMT-- DE- ZEW. Second Tier Sentiment Survey
  • POTENTIAL PRICE RISK: HIGH-Medium Tue--13:30 GMT-- US- PPI

  • POTENTIAL PRICE RISK: HIGH-Medium Wed--09:30 GMT-- GB- Employment
  • POTENTIAL PRICE RISK: HIGH Wed--13:30 GMT-- US- CPI
  • POTENTIAL PRICE RISK: Medium Wed--15:30 GMT-- US- EIA Crude
  • POTENTIAL PRICE RISK: High Wed--19:00 GMT-- US- Fed Decision


  • POTENTIAL PRICE RISK: HIGH- Thu --00:30 GMT-- AU- Employment
  • POTENTIAL PRICE RISK: Medium- Thu --All day-- global- flash PMIs
  • POTENTIAL PRICE RISK: HIGH-Medium- Thu --07:30-- CH- Swiss National Bank Decision
  • POTENTIAL PRICE RISK: HIGH-Medium- Thu --09:30-- GB- Retail Sales
John M. Bland, MBA
co-founding Partner, Global-View.com EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105