The US dollar is looking to erase Monday’s loss, with the broader financial market deep in the red. The greenback struggled in April, but it is attempting to initiate a rebound in May, despite widespread inflation fears. Can the buck turn things around this month, or will investors’ risk tolerance dampen the currency’s prospects?
According to the Bureau of Economic Analysis (BEA), the US trade deficit widened to an all-time high of $74.4 billion in March, up from $70.5 billion in February. It nearly matched the median estimate of $74.5 billion.
Imports surged to a record high of 6.3% of $274.5 billion, led by higher purchases for consumer goods, apparel, industrial supplies, capital goods, and automobile and parts.
Exports increased 6.6% to a 13-month high of $200.3 billion, supported by greater sales for industrial supplies and materials, capital goods, and services.
Market analysts are homing in on one key revelation from the monthly snapshot of trade: the US deficit with China ballooned 22% to $36.9 billion, and the shortfall with Mexico climbed 23.5% to $8.4 billion.
PNC senior economist Bill Adams wrote in a research note:
“Stimulus has kept American consumers spending through the pandemic, but restrictions on high-contact industries have diverted consumer spending from domestically produced services to goods, much of which are imported.
As the pandemic comes under control in the United States, American consumers will spend less on imported goods, shrinking imports; and foreigners will buy more U.S. exports as their economies recover further.”
The bond market was mixed on Tuesday, with the benchmark 10-year yield down 0.038% to 1.568%. The one-year bill was unchanged at 0.056%, while the 30-year bond dropped 0.043% to 2.245%.
The US Dollar Index (DXY), which measures the greenback against a basket of currencies, rose 0.35% to 91.27, from an opening of 91.00. The index has had a rough month, sliding 1.2%. Year-to-date, the DXY is still up 1.5%.
The USD/CAD currency pair advanced 0.34% to 1.2321, from an opening of 1.2278, at 14:45 GMT on Tuesday. The EUR/USD tumbled 0.36% to 1.2020, from an opening of 1.2063.