Dollar declines in rumor-prone market-by Kevin Plumberg
The dollar on Thursday suffered its largest single-day decline in two months, spurred by market chatter on central bank foreign exchange reserve diversification, which reignited concerns about the growing U.S. trade deficit. Also, rumors the White House issued a statement in support of a weaker dollar accelerated what was already a clear move lower in the dollar partly driven by technical factors, traders said. But concerns have indeed been revived that the United States may not be able to continually attract enough capital flows from abroad, particularly from China which has the world's largest currency reserves, to offset its enormous trade deficit, which reached a record $723.6 billion last year.
"China is probably going to make some adjustments that include slower reserve accumulation in the future and therefore slower reflow into the United States," said Robert Sinche, global head of currency strategy with Bank of America. "Throw on top of that talk of some Middle Eastern central banks doing some reserve diversification, all of this leaves some negative structural backdrop to the dollar, so that any time you get inclinations there is less Fed tightening in the works, the natural course for the dollar is lower," he added.
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