CURRENCIES: The euro raced towards parity with the dollar yesterday after the US trade deficit swelled to a record level in April. The weak dollar and continued worries over corporate earnings saw US markets take another dive late yesterday.
The Nasdaq closed down 2.1 per cent, hitting a new low for the year, while the Dow slipped 1.4 per cent.
The euro and other world currencies have been gaining on the dollar for several weeks, as foreign capital shies away from US markets where corporate scandals have eroded investor confidence.
Pressure on the dollar was stepped up sharply yesterday morning when the US Commerce Department announced that the trade deficit had widened to a record $35.94 billion (€37.28 billion) in April.
The current account deficit, which registers investment flows, also soared to a record $112.5 billion for the first quarter.
The euro broke through the 96 US cent mark shortly after the news and the Japanese yen made modest gains, as traders waited for possible Bank of Japan intervention. The euro is now at its highest level against the dollar for more than two years, reaching 96.45 cents in afternoon European trading, its highest since March 2000.
Analysts said that the longer the dollar slide continues the more likely it is that investors will move their assets into euros, creating a further spiral downwards for the greenback.
The record US trade deficit was due to a sharp increase in the import of foreign cars, televisions, VCRs, toys and clothes. The higher the deficit, the more dollars must be sold to acquire the foreign currency to pay for imports, while at the same time fewer dollars are flowing into US financial markets.
Both trends drive down the exchange rate. The total imports of goods and services into the US rose 4.7 per cent in April to $116 billion, due to increased consumer demand as the economy recovers and the cheapness of foreign products. There was also a big increase in the cost of imported crude oil, which rose by $3.30 a barrel, the biggest one-month jump in nearly 12 years.
US exports rose at just half the rate of imports, which analysts attributed to the fact that the rest of the world was not recovering as quickly as the United States.
Meanwhile, hopes on Wall Street for better corporate profits to drive stock prices up from their recent lows faded yesterday as several major companies warned they would not meet expectations.
In stocks, the biotechnology sector slumped after Genzyme cut second-quarter and 2002 estimates.
ImClone Systems fell again after the biotech firm was warned of possible action by the Securities and Exchange Commission for the way it handled disclosures about its cancer drug, Erbitux.
The former chief executive of ImClone, Mr Samuel Waksal, was arrested on insider-trading charges. ImClone shares sank 18 per cent.
Disney fell 6.1 per cent and General Motors 4.0 per cent.
