By Deborah Levine and Lisa Twaronite, MarketWatch
NEW YORK (MarketWatch) — The dollar turned higher against the euro and other major currencies on Friday, after a pair of U.S. economic reports showed the trade deficit shrunk and import prices rose.
The dollar has gained more than 1% against the euro and Japanese yen this week as a selloff in Treasury bonds pushed yields sharply higher, making U.S. debt more attractive to foreign investors.
The bonds sold at a much lower yield than traders expected.
Sharply rising yields this week gave the greenback a lift by drawing investors to the currency.
The dollar index (DXY 80.18, +0.11, +0.14%) , a measure of the greenback’s performance against a basket of six other currencies, rose to 780.151 from 80.042 in late North American trading Thursday.
Bonds see higher growth outlook
Higher yields for bonds might reflect a stronger outlook for the economy.
The euro (EURUSD 1.3206, -0.0029, -0.2191%) slipped to $1.3215 from $1.3243 Thursday.
Against the yen, the dollar (USDYEN 83.9100, +0.1900, +0.2269%) turned up to ¥83.96 from ¥83.71.
The U.S. said its trade gap narrowed in October to $38.7 billion, smaller than analysts expected. Read more on U.S. trade deficit.
The U.S. exported more goods during the month, which will also boost economic growth projections for the quarter, analysts said.
“This was an extremely strong report and it suggests that the favorable impact of the weak U.S. dollar is beginning to be felt in a big way in the economy,” said strategists at TD Securities. “We expect net trade to be a source of support for economic activity during the quarter.”
A separate report showed import prices jumped more than predicted in November.
Still to come is a report on U.S. consumer confidence.
The dollar slipped in Asian trading after China released data showing exports and imports topped economists’ estimates. The results bode well for overseas growth and investors’ appetite for riskier assets than the U.S. dollar.
“The jump in November is a most welcome development and indeed suggests that global demand remains quite healthy,” said Dan Greenhaus, chief economic strategist at Miller Tabak.
The data also keep pressure on Beijing to further tighten policy and allow its currency to appreciate, analysts said. Read more on China trade data.
Beijing has recently begun to allow the yuan to appreciate at a faster rate against the U.S. dollar to ease inflation, but it has been mostly stable since the middle of last month.
Analysts also noted that thinning liquidity could affect trading conditions this month, either by keeping currency pairs range-bound, or amplifying the effects of any moves that do occur.
“The final weeks of the trading year hold holidays for many countries and the close of the accounting year for a considerable portion of global traders means there is a broad swath of the market unwinding and a sharp drop in participation,” said John Kicklighter, currency strategist at DailyFX, in a note to clients.
