Dollar rallies as US trade deficit hits 18-month low

PAUL WALLACE

Economics Editor

The dollar rally was underpinned yesterday by renewed hopes of imminent interest rate cuts in Germany and favourable trade movements in the US and Japan. The Japanese current account surplus shrank for the second year running and the US trade deficit improved sharply to its lowest for a year and a half.

By the close of trading in London, the dollar had risen by half a yen. It also gained over half a pfennig against the German mark as a fall in manufacturing orders in December brought hopes of swift interest rates cuts.

These were helped by comments by a member of the Bundesbank Council backing further monetary easing. Hans-Jurgen Krupp said that Germany could be facing recession and that the underlying trend of the money supply was weak. "This could well make further rate cuts necessary," he said.

In the post-war period, the Bundesbank has only once cut the floor discount rate below its present level of 3 per cent. However, Mr Krupp said that "one shouldn't jump to the conclusion that further interest rate cuts are ruled out" as a result.

Manufacturing orders in Germany shrank by half a per cent in December. An increase in export orders was more than offset by a fall of 2.4 per cent in domestic orders. Overall orders were down by 6.4 per cent compared with a year earlier.

The Japanese current account surplus dropped by 15 per cent in 1995 to $110.4bn. In yen terms it shrank by 22 per cent. The trade surplus also fell for the first time in five years, by 8 per cent to $134.8bn from last year's record $146bn. Higher imports of personal computers, cars and semiconductors and lower exports of cars helped push the deficit down.

Meanwhile, the US trade gap of $7.1bn in November was much better than expected, and the lowest deficit since March 1994. The markets had been forecasting $8.4bn.

The improvement in the trade gap was interpreted as further evidence of a slowdown.

"Although the slowdown in imports boosts growth on an arithmetic basis," said David Bloom, US economist at James Capel, "it may be due to destocking and hence weak domestic demand. This would be felt in the first and second quarters. It is unlikely the US would be able to export itself out of its current weakness since its main trading partners are also suffering slowdowns."

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?