USD Surges Despite Twin Deficit Data

The dollar sharply rallied against the euro and sterling, reversing yesterday’s losses and climbing to 1.39 versus the euro and 1.6242 against the sterling. The 10-year Treasury note edged up toward the 4% level, reflecting underlying fears of forthcoming rate hikes, while the major US equity bourses slid by nearly 1%.

Traders analyzed the US twin deficit data released earlier in the session. The April trade deficit was slightly higher than expectations, edging up to $29.16 billion, from an upwardly revised $28.5 billion from March. US exports slid to its lowest level in 3-years, falling by $2.2 billion to $121.1 billion, while imports fell by $2.2 billion to $150.3 billion. The US Treasury released the May budget deficit earlier, revealing a record $189.5 billion deficit – higher than forecast and up from a $165.93 billion budget deficit a year earlier. The 2009 fiscal deficit climbed closer to the $1 trillion at $991.95 billion.

The Federal Reserve’s Beige Book said economic conditions in the 12 Fed districts either remained weak or worsened through May. The report saw five districts acknowledging the downward trend beginning to show signs of moderating while some districts said there are nascent signs that job losses may be moderating. The Fed said districts mostly saw prices at all stages of production to be generally flat or falling, with the notable exception to downward pricing pressures is the widely reported increase in the price of oil. The Beige Book also noted that retail spending remained soft and that real estate markets continued to deteriorate in all districts.