Friday’s data showed that the US trade deficit unexpectedly narrowed in March, shrinking to $58.2 billion from $61.7 billion in February (initial estimate was $62.3 billion). This 5.7% decline was more than what most analysts had expected as they had predicted the gap would narrow to $61.3 billion. At first glance, this is good news for the US dollar as it shows that the deficit is narrowing and not ballooning. However, what caused the trade gap to narrow was not an increase in exports, but a sharp decrease in imports.

Imports into the US fell $6.1 billion to $206.7 billion, which was the biggest drop ever recorded. In terms of percentage, it was the biggest drop since December 2001. Not only was there lower demand for overseas products and goods, the weakening dollar also made those foreign goods more expensive to purchase. This big drop in imports only reinforces the overall view that American consumers are tightening their belts, choosing to spend their salary on basic necessities.

Import of autos, consumer goods, industrial supplies and capital goods all fell in March. US exports in March totaled $148.5 billion, the second highest amount ever recorded, but was a decline from February. Overseas buyers are finding US goods cheaper to buy due to their stronger domestic currencies relative to the weak dollar. While the narrowing trade gap may help the US dollar in the short-term due to less outflow of dollars, it doesn’t mean that the US economy wouldn’t slide into recession. Harvard University economist Martin Feldstein, who is also President of the National Bureau of Economic Research, said on Tuesday that the US economy is “sliding into a recession”.

Forex Trading

The US dollar has been trading with mixed results in the currency markets: it fell slightly against the Euro, Japanese yen and Swiss franc, but up versus the British pound. USD/CHF fell to an intraday low of 1.0390, while EUR/USD remains under 1.5500. USD/JPY fell to a 3-week low around 102.60.

Posted in Categories: Economy, Forex.

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