Widening Trade Deficit Should Dampen Demand for U.S. Dollar

The greenback is moving lower in forex trading on the currency market today. As the U.S. stock market moves into rally mode, the U.S. dollar is dropping in currency trading. But a tentative desire for risk is not one of the biggest factors behind the dollar's across the board dip on the currency market.

No, the real story this morning is the widening trade deficit. After closing the trade gap earlier this year, the latest data shows that it is growing again. GFT's Kathy Lien reports in FX360 on the growing U.S. trade deficit, and its  impact on the greenback in forex trading:

Although the U.S. dollar is not providing any obvious benefit to trade, what we are seeing is its impact on prices. Despite the greenback's lower value in September, imports outpaced exports but import prices rose 0.7 percent in October. Crude oil imports contributed to the rise, but Americans also had strong demand for automobiles, industrial supplies and civilian aircrafts. Foreigners are snapping up aircrafts as well, but demand for semiconductors and industrial supplies have increased materially. A growing trade deficit in U.S. should discourage demand for dollars.

Clearly, the fundamentals of the U.S. economy are going to provide problems for the U.S. dollar going forward, since growing government debt and a wider trade gap are going to contribute to a reluctance to favor dollars.