Decline in dollar cuts US trade deficit to 13-month low of $38bn

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The Independent Online

The US economy demonstrated the first benefits of the fall in the dollar yesterday, as official figures showed that America's trade deficit had shrunk dramatically.

The US economy demonstrated the first benefits of the fall in the dollar yesterday, as official figures showed that America's trade deficit had shrunk dramatically.

A surge in exports to a three-year high helped trim the deficit to $38bn (£21bn) in November, the narrowest shortfall in 13 months and down from October's $41.6bn.

However, the dollar rose for a second day yesterday as European politicians stepped up the pressure for a cut in interest rates or co-ordinated foreign exchange intervention to bring down the euro.

The trade figures boosted hopes that the dollar's fall is helping the US to unwind its unsustainably large current account deficit, currently 4.9 per cent of GDP.

"We think that a stabilisation of the US trade and current account deficits is on the cards," Patrick Franke, an economist at Commerzbank in Frankfurt, said. "Exports may now begin to benefit noticeably from the depreciation of the dollar that began in the first quarter of 2002."

US imports fell 0.8 per cent in November. Exports rose 2.9 per cent. Exports of capital goods were strong, boosted by a 60 per cent leap in the volatile aircraft category. Exports of consumer goods rose 7.3 per cent.

The rise in exports will also boost figures for economic growth in the final quarter of 2003, providing another reason why the White House will resists calls for concerted efforts to stem the fall in the dollar.

Yesterday the dollar rose after Christian Noyer, a member of the European Central Bank's council, said currency sales were an option to counter a rally in the euro that could erode demand for European exports.

"Intervention is something that's always available," the governor of the Bank of France told French television.

On Monday, Jean-Claude Trichet, the ECB president, triggered the dollar rise with a warning against "brutal" currency moves.

The euro dropped to $1.2722 yesterday from $1.2773 on Tuesday. It has fallen almost two cents since hitting an all-time high of $1.2899 on Monday.

Meanwhile the United Nations raised its forecasts for world growth in 2004 to 3.5 from 3 per cent but said imbalances in the US economy posed the greatest threat to recovery.

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