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Dollar weakens after Trade data shows deficit widening to record levels

USD

The dollar weakened on Tuesday after the Trade Balance showed a massive widening of the deficit, which hit a six-and-a-half year high of -51.4bn in March.

This was much wider than the -47.1bn expected and the -35.9bn result previously, and it rekindled fears about the slowdown in Q1 being more than a temporary blip – although it did fit with arguments the strong dollar was partly to blame as the data was reflective of a fall in exports.

The poor trade figures weighed on the outlook for monetary policy and the likelihood of a summer rate hike, which has started to look increasingly implausible, with September now considered a more realistic alternative, by many analysts.

Other data showed showed a rise in activity in the Services sector after ISM Non-Manufacturing rose to 57.8 from 56.5 previously, when it had been forecast to fall to 56.2.

EUR

The euro mostly rose on Tuesday, even versus the save-haven yen, against which it recovered after a weak start.

An upgrading of growth forecasts from the European Commission, which published its quarterly economic report probably contributed to euro-buying, after it lifted projected growth in 2015 to 1.5% in the euro-area, a 0.2% increase from the previous forecast in the report three months ago.

Increased growth was as a result of an improvement in underlying economic fundamentals, increased credit transmission and loose ECB policies. Data showing a nearly 119k fall in Spanish unemployment claims in April, seemed to bear out the new positive outlook for the region contained in the report.

Greece is seen as even further away from making a deal with international creditors. The next big meeting with the euro-group is on May 11 but even then the opposing sides are not expected to be able to bridge their differences.

Currently ECB President Mario Draghi is meeting high-ranking Greek politicians, including the new head of the negotiating team Foreign Minister Tsakalotos, and deputy PM Dragasakis in Athens.

GBP

The pound strengthened on Tuesday but more from the weakness of its counterparts than intrinsic strength as the only data release was Construction PMI, which came out considerably lower at 54.2 than the 57.4 expected, as well as the 57.8 previously.

The dollar weakened on a steadily worsening economic outlook after poor trade data.

The pound may have gained partly from traders not selling so close to the election as many will now be sitting on their hands waiting for the result.

Current polls still place the Conservatives marginally ahead or neck-and-neck. According the Guardian newspaper’s projections current polls suggest a hung parliament with only 4 seats difference between the 2 major parties, and the Scottish Nationalists holding the balance of the vote, and possibly determining which of the two parties rule.

JPY

Japan was still on holiday on Tuesday so trading in yen pairs was subdued and not necessarily reflective of Japanese fundamentals. The currency did rise at the start of the day on safety demand as a result of Greek jitters, but gave up those gains as time passed, to end unchanged or broadly lower.

Recent data indicated that Japan’s final estimate of Manufacturing PMI fell to a level of 49.9, registering its first contraction in almost a year in April and compared to previous month’s reading of 50.3.

National CPI in Japan climbed 2.30% yoy in March, compared to market expectations of an unchanged reading of 2.2% recorded in the previous month – and this would have supported the yen.

Also the jobless rate unexpectedly dropped to 3.40% in March, compared to a level of 3.50% recorded in the prior month, thanks to an improving employment situation for young people, according to a report from the Ministry of Internal Affairs and Communications on Friday.

USD

The dollar weakened on Tuesday after the Trade Balance showed a massive widening of the deficit, which hit a six-and-a-half year high of -51.4bn in March.

This was much wider than the -47.1bn expected and the -35.9bn result previously, and it rekindled fears about the slowdown in Q1 being more than a temporary blip – although it did fit with arguments the strong dollar was partly to blame as the data was reflective of a fall in exports.

The poor trade figures weighed on the outlook for monetary policy and the likelihood of a summer rate hike, which has started to look increasingly implausible, with September now considered a more realistic alternative, by many analysts.

Other data showed showed a rise in activity in the Services sector after ISM Non-Manufacturing rose to 57.8 from 56.5 previously, when it had been forecast to fall to 56.2.

EUR

The euro mostly rose on Tuesday, even versus the save-haven yen, against which it recovered after a weak start.

An upgrading of growth forecasts from the European Commission, which published its quarterly economic report probably contributed to euro-buying, after it lifted projected growth in 2015 to 1.5% in the euro-area, a 0.2% increase from the previous forecast in the report three months ago.

Increased growth was as a result of an improvement in underlying economic fundamentals, increased credit transmission and loose ECB policies. Data showing a nearly 119k fall in Spanish unemployment claims in April, seemed to bear out the new positive outlook for the region contained in the report.

Greece is seen as even further away from making a deal with international creditors. The next big meeting with the euro-group is on May 11 but even then the opposing sides are not expected to be able to bridge their differences.

Currently ECB President Mario Draghi is meeting high-ranking Greek politicians, including the new head of the negotiating team Foreign Minister Tsakalotos, and deputy PM Dragasakis in Athens.

GBP

The pound strengthened on Tuesday but more from the weakness of its counterparts than intrinsic strength as the only data release was Construction PMI, which came out considerably lower at 54.2 than the 57.4 expected, as well as the 57.8 previously.

The dollar weakened on a steadily worsening economic outlook after poor trade data.

The pound may have gained partly from traders not selling so close to the election as many will now be sitting on their hands waiting for the result.

Current polls still place the Conservatives marginally ahead or neck-and-neck. According the Guardian newspaper’s projections current polls suggest a hung parliament with only 4 seats difference between the 2 major parties, and the Scottish Nationalists holding the balance of the vote, and possibly determining which of the two parties rule.

JPY

Japan was still on holiday on Tuesday so trading in yen pairs was subdued and not necessarily reflective of Japanese fundamentals. The currency did rise at the start of the day on safety demand as a result of Greek jitters, but gave up those gains as time passed, to end unchanged or broadly lower.

Recent data indicated that Japan’s final estimate of Manufacturing PMI fell to a level of 49.9, registering its first contraction in almost a year in April and compared to previous month’s reading of 50.3.

National CPI in Japan climbed 2.30% yoy in March, compared to market expectations of an unchanged reading of 2.2% recorded in the previous month – and this would have supported the yen.

Also the jobless rate unexpectedly dropped to 3.40% in March, compared to a level of 3.50% recorded in the prior month, thanks to an improving employment situation for young people, according to a report from the Ministry of Internal Affairs and Communications on Friday.



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