The shrunken U.S. trade deficit pushed the dollar sharply higher in Europe Tuesday and boosted share prices on the London Stock Exchange.
Shortly after the announcement in Washington that the deficit was $9.89 billion in April, its lowest since December 1984, the dollar gained more than two pence against the pound and two pfennigs against the West German mark.It registered similar gains against the Dutch guilder, Swiss franc and other major currencies.
David Lomax, an analyst at National Westminster Bank PLC, called the trade figures "absolutely good news."
"The key thing was to get the dollar down to a low enough level to give American exports a chance, and that's happened," he said. "The dollar will be treated with a lot of respect now and be very stable."
A currency dealer in Frankfurt, West Germany, said the market is now convinced that the end of big U.S. trade deficits is in sight, and that the U.S. Federal Reserve wants to see a higher dollar.
Dealers said the West German central bank began selling dollars in the open market immediately after the trade figures were announced, hoping to prevent the U.S. currency from strengthening too quickly.