Fundamental Comment

Dollar tumbles to two-week low on renewed twin deficit concerns

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The U.S. dollar plummeted to a two-week low versus major currencies on Thursday on renewed fears of a twin U.S. deficit.

The dollar index opened on a downside gap, extending its fall for a fourth straight session to a two-week low of 88.48 after the boosts from stronger than expected U.S. inflation data proved to be short lived.

U.S. consumer prices soared more than forecast in January, thereby raising expectations of a more rapid rate hikes trajectory by the Federal Reserve.

However, the dollar erased all the gains generated after the release of the report as it tumbled from a peak of 90.00 to close at 88.91.

Investors’ attention has moved back to worries of growing U.S. fiscal deficit and wider current-account deficit, where both combined reaching once again 6 percent of gross domestic product.

The passage of a $1.5 trillion tax cut and the increase in spending by nearly $300 billion over the next two years have raised concerns of selling budget shortfall.

The budget deficit mushroomed by 11 percent to $176 billion in the first four months of the fiscal year, between October and January, marking the biggest fiscal shortfall since 2013.

President Donald Trump’s $4.4-trillion budget proposal added to worries as it would raise U.S. deficit next year by nearly double last year’s projections to $984 billion and climb further to $7.1 trillion over the next decade.

Later in the day, the U.S. will release its producer prices inflation data for January, but it is less likely to have a great impact on the dollar’s movements.

Against the yen, the dollar slipped to a 15-month low of 106.17, where Japanese Finance Minister Taro Aso said on Thursday that he doesn’t consider the current yen levels as being strong or weak enough to trigger an intervention.

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