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Dollar rises after sliding on Trump remarks on currency, rates

FILE PHOTO: U.S. dollar notes are seen in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo

By Dion Rabouin

NEW YORK (Reuters) – The U.S. dollar rose on Thursday, rebounding after a slide that investors considered overdone following remarks by President Donald Trump that the currency was getting too strong and he would prefer the Federal Reserve to keep interest rates low.

The greenback and U.S. Treasury yields took a heavy hit after Trump’s comments to the Wall Street Journal, in which he said the strength of the dollar would hurt the economy.

But after losing 0.6 percent on Wednesday – its biggest one-day fall in more than three weeks – the dollar recovered on Thursday against a basket of major currencies <=USD> that tracks its value, rising 0.3 percent.

“Clearly, I think it was oversold yesterday,” said Peter Ng, senior currency trader at Silicon Valley Bank in Santa Clara, California. “The market was very sensitive to headlines given how nervous it has become due to geopolitical risk.”

Trading was also thinner than usual because of the impending Good Friday holiday in the U.S. and Europe this week, Ng said.

Having hit a five-month low of 108.73 yen in early Asian trading, the dollar steadied at 109.20 yen. <JPY=>

“Yes, it was negative what (Trump) said…but it’s not a big surprise – it wasn’t a U-turn in his rhetoric on the exchange rate so far,” said Commerzbank currency strategist Thu Lan Nguyen in Frankfurt.

“The question is: is he able to influence monetary policy in order to get a weaker dollar? That is still an open question.”

Trump’s remarks went against a long-standing practice of both U.S. Democratic and Republican administrations of refraining from commenting on policy set by the independent Federal Reserve. It is also unusual for a president to talk about the value of the dollar, a subject usually left to the U.S. Treasury secretary.

The dollar has shed 1.7 percent against the yen so far this week, its fourth week lower against the safe-haven Japanese currency in five, as a rise in tensions in Asia and Europe prompted yen buying.

Investors are concerned about the upcoming French presidential election as well as possible U.S. military action against Syria and North Korea, and an escalation of tensions with Russia.

The euro fell 0.5 percent to $1.0619 <EUR=> after touching a one-week high in overnight trading.

The dollar was little changed against China’s offshore yuan <CNH=D3>, after falling to a six-day low on Wednesday. It had risen to a one-month high at the start of the week.

(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Bernadette Baum)

Wall Street flat as investors assess earnings, Trump comments

Traders work on the floor of the New York Stock Exchange (NYSE) in the Manhattan borough of New York, New York, U.S., April 4, 2017. REUTERS/Brendan McDermid

By Yashaswini Swamynathan

(Reuters) – U.S. stocks were little changed on Thursday as investors assessed the first rush of bank earnings and President Donald Trump’s remarks on the dollar’s strength and interest rates.

Shares of JPMorgan <.JPM.N> and Citigroup <C.N> rose about 1 percent after the two banks reported better-than-expected quarterly profits.

However, Wells Fargo <WFC.N> slipped 2.5 percent after reporting a big drop in mortgage banking revenue.

The earnings reports come in the wake of a frenetic rally in bank shares that started after Trump’s election as U.S. president on hopes that he would rein in banking regulations and introduce other business friendly policies.

At 10:01 a.m. EDT the Dow Jones industrial average <.DJI> was down 0.58 points, flat, at 20,591.28, the S&P 500 <.SPX> was up 0.68 points, or 0.028999 percent, at 2,345.61 and the Nasdaq Composite <.IXIC> was up 10.40 points, or 0.18 percent, at 5,846.56.

“Investors will (be) faced with another day of market uncertainties as bank earnings, geopolitical worries and Trump’s comments on the greenback are being reflected in the volatility index that is flashing trouble ahead,” Peter Cardillo, chief market economist at First Standard Financial, wrote in a note.

Trump told the Wall Street Journal on Wednesday that the dollar “was getting too strong” and that he would like to see interest rates stay low.

The S&P 500 financial index <.SPSY> was up 0.2 percent, while five other S&P sectors were down.

Nine of the 11 major S&P sectors were lower, led by a 0.4 percent decline in financials. Bank of America <BAC.N> and Goldman Sachs <GS.N> are due to report results next week.

Shares of Applied Optoelectronics <AAOI.O> jumped nearly 23 percent to $50.15 after the company said it expected first-quarter earnings to exceed its forecast.

Trading volumes could be lower than usual on Thursday ahead of the Good Friday holiday.

Declining issues outnumbered advancers on the NYSE by 1,403 to 1,186. On the Nasdaq, 1,201 issues fell and 1,163 advanced.

The S&P 500 index showed two 52-week highs and no lows, while the Nasdaq recorded 10 highs and 27 lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D’Silva)

Investors play safe as Syria tensions rise

By Marc Jones

LONDON (Reuters) – Nervous investors sought shelter in gold, Treasuries and the yen on Tuesday as growing tensions over Syria put the U.S. administration and Russia on a collision course.

European shares edged higher, reversing early falls, but Wall Street looked set to open lower, according to index futures <ESc1> <1YMc1>, as uncertainty over looming French presidential elections also simmered.

U.S. Secretary of State Rex Tillerson carried a unified message from world powers to Moscow, denouncing Russian support for Syria, after a meeting with foreign ministers of the Group of Seven major advanced economies and Middle East allies.

Western countries blame Syrian President Bashar al-Assad for last week’s deadly gas attack. U.S. President Donald Trump responded by firing cruise missiles at a Syrian air base. Russian President Vladimir Putin has stood by Moscow’s ally Assad, who denies blame.

Gold <XAU=> hit its highest since November, emerging market stocks <.MSCIEF> were on their worst run of the year so far, while the euro <EURJPY=> fell to a four-month low versus a broadly stronger Japanese yen. <JPY=> [FRX/]

“It’s a relatively modest reaction but there is a lot of geopolitical risk in global markets at the moment,” said TD Securities European head of currency strategy Ned Rumpeltin.

“There is Syria, there is more uncertainty about the U.S. economy after relatively weak jobs numbers and we have French elections coming up.”

The latest polls from France are providing another twist in the race for the presidency, with far-left candidate Jean-Luc Melenchon making ground against the rest of the pack before the first round of voting on April 23.

This has raised the possibility that Melenchon could square off against far-right leader Marine Le Pen – both of whom are eurosceptics – in the election’s decisive second round in May.

German Bunds yields dipped below 0.20 percent for the first time in more than five weeks, before edging higher, while French yields <FR10YT=TWEB> hit a one-week high of 0.96 percent leaving the gap between the two – a key gauge of investors’ concerns – at its widest in six weeks. [GVD/EUR]

“After Britain’s Brexit referendum and the U.S. presidential election surprised markets in 2016, could this event do the same?,” Mark Burgess, global head of equities at Columbia Threadneedle in London, wrote in a note.

Then pan-European STOXX 600 share index <.STOXX> eked out gains of 0.1 percent, led higher by miners <.SXPP> as the gold price rose. MSCI’s main index of Asia-Pacific shares, excluding Japan <.MIAPJ0000PUS> fell 0.2 percent. Emerging market shares were on track for their first four-day losing streak of 2017.

Gold <XAU=>, sought at times of global tension as a safe place to store wealth, last traded up 0.3 percent on the day at almost $1,258 an ounce. The precious metal hit a five-month high above $1,270 on Friday after the U.S. missile strike on Thursday.

The dollar fell 0.1 percent against a basket of other major currencies <.DXY>. The greenback weakened 0.4 percent to 110.53 yen <JPY=> and 0.2 percent to $1.0616 per euro <EUR=>. Sterling rose <GBP=D3> 0.2 percent to $1.2441.

Oil retreated from five-week highs hit earlier in the day as concerns about rising U.S. shale production offset a shutdown at Libya’s largest oilfield over the weekend and the U.S. strikes against Syria that had supported prices.

Global benchmark Brent <LCOc1> fell 4 cents to $55.94, breaking a six-session winning streak.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

(Additional reporting by Kit Rees, John Geddie, Ritvik Carvalho and Nigel Stephenson in London Editing by Keith Weir and Pritha Sarkar)

Wall St. set to open lower as ‘Trump trade’ fizzles

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., March 21, 2017. REUTERS/Lucas Jackson

By Tanya Agrawal

(Reuters) – U.S. stocks looked set to open slightly lower on Wednesday, a day after Wall Street posted its biggest one-day fall since the November election, as investors fret about potential delays to President Donald Trump’s pro-growth policies.

Trump on Tuesday tried to rally Republican lawmakers behind a plan to dismantle Obamacare, his first major legislation since assuming office in January.

Republican leaders aim to move the controversial legislation to the House floor for debate as early as Thursday, amid concerns over support from party lawmakers.

Some investors fear that if the healthcare reform act runs into trouble or takes longer-than-expected to pass, then Trump’s tax reform policies may face setbacks.

“The markets were reminded yesterday the ‘Trump trade’ is not a one-way trade and there’s room for disappointment as actions on tax cuts and infrastructure spending might not materializes as quickly as we want,” said Anastasia Amoroso, global market strategist at J.P. Morgan Private Bank in Houston.

“The pronounced fall in yields across the world is not helping market sentiment at the moment either.”

U.S. 10-year Treasury yields fell to three-week lows on Tuesday and the gap between U.S. and German 10-year government borrowing costs hit its narrowest since November.

The S&P 500 has run up about 10 percent since the election in November, spurred mainly by Trump’s agenda of tax cuts and infrastructure spending, but valuations have emerged as a concern.

The benchmark index is trading at about 18 times forward earnings estimates against the long-term average of 15, according to Thomson Reuters data.

The last time the S&P 500 lost 1 percent or more in a day was on October 11.

“Given the full valuation and the long time that’s passed since we’ve had a one percent down day, let alone a correction, a forward correction is a real possibility,” said Amoroso.

Dow e-minis <1YMc1> were down 32 points, or 0.16 percent, with 45,088 contracts changing hands at 8:25 a.m. ET.

S&P 500 e-minis <ESc1> were down 0.75 points, or 0.03 percent, with 243,649 contracts traded.

Nasdaq 100 e-minis <NQc1> were down 2.25 points, or 0.04 percent, on volume of 45,312 contracts.

Oil prices also dipped and slipped back to three-month lows after data showed U.S. crude inventories rising faster than expected. [O/R]

Gold prices rose to a three-week high and the dollar index <.DXY>, which measures the greenback against a basket of currencies, was at 99.87, near the six-week low of 99.64 reached on Tuesday.

Shares of financials, which suffered their worst daily drop since June, were lower in premarket trading. Bank of America <BAC.N>, Goldman Sachs <GS.N>, JPMorgan <JPM.N>, Citigroup <C.N> and Wells Fargo <WFC.N> were all down. The financial sector has been the best performing of the 11 major S&P sectors since Trump’s election, up 18 percent.

Sears Holdings <SHLD.O> slumped 14.8 percent to $7.75 after the retailer warned on Tuesday about its ability to continue as a going concern after years of losses and declining sales.

Dow-component Nike <NKE.N> was down 5.3 percent at $54.91, a day after the world’s largest footwear maker’s quarterly revenue missed expectations.

FedEx <FDX.N> rose 2.9 percent to $197.87 after the package delivery company posted an optimistic outlook for margins in the near-term.

(Reporting by Tanya Agrawal; Editing by Sriraj Kalluvila)

Wall Street sinks on fears of delays to Trump tax cuts

By Noel Randewich

(Reuters) – Wall Street fell sharply on Tuesday as investors worried that President Donald Trump will struggle to deliver promised tax cuts that propelled the market to record highs in recent months, with nervousness deepening ahead of a key healthcare vote.

The S&P 500 and Dow Jones Industrial Average lost over 1 percent in their worst one-day performances since before Trump’s election victory in November.

The S&P financial index <.SPSY> sank 2.87 percent, its biggest daily fall since June. That added to losses in the sector since the Federal Reserve last week raised interest rates by 25 basis points and signaled it would remain on a gradual pace of hikes, a less aggressive stance than some investors expected.

Banks benefit from higher interest rates and their stocks are sensitive to changes in expectations of how quickly the Fed will adjust rates. Bank of America <BAC.N> slumped 5.77 percent, the biggest drag on the S&P 500, while a 3.72-percent drop in Goldman Sachs <GS.N> pulled the Dow lower.

“There was a feeling the Fed was going to possibly be more hawkish last week. That didn’t happen,” said Mark Kepner, managing director at Themis Trading in Chatham, New Jersey. “That takes a little out of the higher rates that the banks want.”

Republican party leaders aim to move controversial healthcare legislation to the House floor for debate as early as Thursday. But they can only afford to lose about 20 votes from Republican ranks, or risk the bill failing, since minority Democrats are united against it.

With valuations stretched, investors see the Trump administration’s struggles to push through the healthcare overhaul as a sign he may also face setbacks delivering promised corporate tax cuts. Expectations of those tax cuts are a major reason for the 10-percent surge in the S&P 500 since Trump’s election.

“The market is starting to get a little fed up with the lack of progress in healthcare because everything else is being put on the back burner,” said RJ Grant, head of trading at Keefe, Bruyette & Woods in New York.

The Russell 2000 <.RUT> index of smallcap stocks fell 2.71 percent, its worst day since September.

The financial sector has been the best performing of the 11 major S&P sectors since Trump’s election, surging 18 percent on his proposals to cut bank regulations and reduce taxes.

The Dow Jones Industrial Average <.DJI> dropped 1.14 percent to end at 20,668.01 points, while the S&P 500 <.SPX> lost 1.24 percent to 2,344.02.

The Nasdaq Composite <.IXIC> fell 1.83 percent to 5,793.83.

The CBOE Volatility index <.VIX>, Wall Street’s “fear gauge”, jumped 10 percent.

Under Trump, Wall Street has become unaccustomed to steep selloffs. The last time the S&P 500 lost 1 percent or more in a day was 110 trading sessions ago on October 11. Over the past two years, the S&P 500 has suffered losses of 1-percent or more about once every 11 sessions, according to Thomson Reuters data.

But investors have grown worried about elevated valuations. The S&P 500 is trading at about 18 times forward earnings estimates against the long-term average of 15, according to Thomson Reuters data.

Shares of FedEx Corp <FDX.N> dropped 3 percent in extended trade after the delivery company’s quarterly report disappointed investors.

Declining issues outnumbered advancing ones on the NYSE by a 3.92-to-1 ratio; on Nasdaq, a 5.25-to-1 ratio favored decliners.

The S&P 500 posted 27 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 78 new highs and 79 new lows.

About 8.3 billion shares changed hands in U.S. exchanges, compared with the 7.1 billion daily average over the last 20 sessions.

(Additional reporting by Chuck Mikolajczak and Sinead Carew in New York, editing by Nick Zieminski)

Dollar loses more ground; yen up on safe-haven demand

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar dipped to a near-four month low against the Japanese yen on Tuesday as concerns about how quickly the Trump administration can implement pro-growth policies pushed stocks lower and kindled safe-haven demand for the Japanese currency.

The dollar fell 0.86 percent to 111.58 yen <JPY=>, its lowest since Nov. 28. The dollar index, which measures the greenback against a basket of six major currencies, dipped below the 100 level for the first time since Feb. 7.

“The current and ongoing breakdown in the U.S. dollar is representative, driving some short-term and nascent deleveraging of legacy ‘reflation’ trades, with DXY through the psychological 100 level,” said Charlie McElligott, managing director and head of U.S. cross-asset strategy at RBC Capital Markets.

The S&P 500 <.SPX> S&P 500 dropped more than 1 percent for the first time since October. U.S. Treasury yields fell to three-week lows. [nL2N1GY1E5]

“There is certainly some interplay between all these factors that is supporting the yen,” said Erik Nelson, a currency analyst at Wells Fargo in New York.

The greenback has been under pressure after comments from the U.S. Federal Reserve last week disappointed dollar bulls.

“It’s probably going to take some sort of meaningful change in expectations around monetary or fiscal policy to revive the dollar and set it back on a strengthening trend,” Nelson said.

The upcoming French elections helped the euro and weighed on the dollar after centrist Emmanuel Macron’s performance in a televised debate boosted a view that he would win the presidential race over the far-right’s Marine Le Pen.

Bullish bets on the dollar spurred by Donald Trump’s U.S. presidential win and his pledge on tax cuts, deregulation and infrastructure spending last November have been fully unwound, Bank of America Merrill Lynch currency strategist Myria Kyriacou said in a note.

The euro rose to its highest level since Feb. 2, and was last up 0.69 percent to $1.0812.

The prospect of anti-European Union, far-right candidate Le Pen delivering a surprise election win has rattled French bond markets this year and is a key source of political uncertainty for the euro.

“Any news between now and the French election next month that suggests fading risk of a Le Pen victory would probably be supportive of the euro,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Sterling jumped 1.1 percent to its highest level in three weeks, after data showed British inflation in February above the Bank of England’s 2 percent target for the first time since the end of 2013. This was seen as boosting chances for a rate hike from the BoE.

(Reporting by Saqib Iqbal Ahmed; Editing by Leslie Adler and Lisa Shumaker)

Dow tops 21,000 on Trump speech, rate hike talk

A screen shows the Dow Jones Industrial Average soon after the market opened on the floor of the New York Stock Exchange . REUTERS/Brendan McDermid

By Yashaswini Swamynathan

(Reuters) – The Dow crossed the 21,000 mark for the first time ever on Wednesday, as President Donald Trump’s measured tone in his first speech to Congress lifted investor optimism and bank stocks surged on hopes of an interest rate hike this month.

Trump on Tuesday said he wanted to boost the U.S. economy with a “massive” tax relief and make a $1 trillion effort on infrastructure, bets that have helped Wall Street scale new records since the November election.

“Trump came off very Presidential and investors are drawing optimism from the way he delivered the message in his speech,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.

“Today is just another vote of confidence in Donald Trump being able to do what he says he wants to do.”

If the Dow closes above 21,000, it would have taken 24 trading sessions since the blue-chip index first closed above 20,000, matching the fastest move between thousand-point milestones, which happened between March and May 1999 and took the index above 11,000.

Banks and industrial stocks, which have benefited the most in the post-election rally, were the biggest gainers on Wednesday. The spike also helped the S&P to break out from the tight trading range the index has been stuck in since Dec. 7.

The three main indexes were on track for their best one-day gain since Nov. 7, a day before the U.S. presidential election.

The S&P financial index <.SPSY> soared 2.7 percent, outperforming the other 10 major sectors, also helped by key Federal Reserve officials who hinted at an interest rate hike this month.

The KBW Nasdaq Bank index <.BKX> was up 3.3 percent, while the dollar gained 0.6 percent.

The odds of March rate hike also rose after the Commerce Department reported that January inflation ticked up by the most in four years.

Traders have now priced in a nearly 70 percent chance of rate hike when the Fed’s policy-setting body meets on March 14-15, according to Thomson Reuters data.

Gold prices, the CBOE Volatility index <.VIX> and bond proxy sectors of the S&P 500 dropped.

“The specter of higher rates means the economy is doing better,” Bakhos said.

At 12:18 p.m. ET the Dow Jones Industrial Average <.DJI> was up 290.2 points, or 1.39 percent, at 21,102.44, the S&P 500 <.SPX> was up 33.11 points, or 1.40 percent, at 2,396.75 and the Nasdaq Composite <.IXIC> was up 76.88 points, or 1.32 percent, at 5,902.31.

Seven of the 11 major S&P sectors, including industrials <.SPLRCI> and materials <.SPLRCM>, gained between 1.4 and 2.7 percent.

Lowe’s <LOW.N> stock jumped 9.3 percent to $81.22 and was the biggest percentage gainer on the S&P, after the home improvement chain issued an upbeat sales forecast.

One laggard on all the three indexes was Intel <INTC.O>, which fell 1.2 percent after Bernstein downgraded the stock to “underperform” and cut its price target.

Advancing issues outnumbered decliners on the NYSE by 2,044 to 891. On the Nasdaq, 2,192 issues rose and 620 fell.

The S&P 500 index showed 127 new 52-week highs and four new lows, while the Nasdaq recorded 189 new highs and 32 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila)

Dow breaches 21,000 as banks gain on rate talk

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 28, 2017. REUTERS/Brendan McDermid

(Reuters) – U.S. stocks opened at record intraday highs on Wednesday, with the Dow breaching the 21,000 mark for the first time ever as a more measured tone in President Donald Trump’s speech reassured investors and bank stocks gained on higher chances of an interest rate hike this month.

The Dow Jones Industrial Average <.DJI> was up 184.17 points, or 0.88 percent, at 20,996.41, the S&P 500 <.SPX> was up 18.65 points, or 0.789037 percent, at 2,382.29 and the Nasdaq composite <.IXIC> was up 49.66 points, or 0.85 percent, at 5,875.10.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila)

Dow hits 12th record high close; Trump talks up infrastructure spending

Leaf Group CEO Sean Moriarty (4th L) stands amongst Leaf Group management and board members for the opening bell at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S.

By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. stocks ended slightly higher on Monday and the Dow closed at a record high for a 12th straight session, as President Donald Trump said he would make a “big” infrastructure statement on Tuesday.

The Dow’s streak of record-high closes matches a 12-day run in 1987, with Boeing and UnitedHealth among the biggest boosts for the Dow on Monday. The S&P 500 also closed at a record high. Energy gave the biggest boost to the S&P 500, with the energy index up 0.9 percent.

Trump, who met with state governors at the White House, also said he is seeking what he called a “historic” increase in military spending of more than 9 percent, while he said his administration would be “moving quickly” on regulatory reforms.

The comments came ahead of Trump’s first address to a joint session of Congress Tuesday evening. Investors are looking for more specifics on Trump’s plans, given the hefty gains in the market since the Nov. 8 election.

“Things are moving along in terms of the Trump agenda, but we’ll get a clearer picture after tomorrow night so that might precipitate some buying or selling,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

Hellwig and others said there’s potentially more upside than downside from the address, given how the market has reacted in recent weeks.

Shares of U.S. defense companies – Boeing, Raytheon, General Dynamics and Lockheed Martin – rose after Trump said he would seek to boost Pentagon spending by $54 billion in his first budget proposal.

Boeing was up 1.1 percent while UnitedHealth was up 1.4 percent.

The Dow Jones Industrial Average was up 15.68 points, or 0.08 percent, to close at 20,837.44, the S&P 500 gained 2.39 points, or 0.10 percent, to 2,369.73 and the Nasdaq Composite added 16.59 points, or 0.28 percent, to 5,861.90.

In its 1987 12-day streak of record-high closes, the Dow rose 9.2 percent compared with just a 3.9 percent gain in the recent record run.

While the S&P 500 is up 10.8 percent since the Nov. 8 election, the pace of the rally has slowed this year.

Trump’s promise a few weeks ago of a “phenomenal” tax announcement helped rekindle the post-election rally, driving the main U.S. markets to record highs.

Time Warner ended up 0.9 percent after news that the head of the U.S. Federal Communications Commission does not expect to review AT&T Inc’s planned $85.4 billion acquisition of Time Warner.

AT&T slipped 1.3 percent.

Advancing issues outnumbered declining ones on the NYSE by a 1.55-to-1 ratio; on Nasdaq, a 1.87-to-1 ratio favored advancers.

The S&P 500 posted 63 new 52-week highs and one new low; the Nasdaq Composite recorded 143 new highs and 45 new lows.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila and James Dalgleish)

U.S. trade deficit falls as exports hit more than 1-1/2 year high

Freighters and cargo containers ready for trade

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. trade deficit fell more than expected in December as exports rose to their highest level in more than 1-1/2 years, outpacing an increase in imports.

The Commerce Department said on Tuesday the trade gap dropped 3.2 percent to $44.3 billion, ending two straight months of increases. The trade deficit rose 0.4 percent to a four-year high of $502.3 billion in 2016. That represented 2.7 percent of gross domestic product, down from 2.8 percent in 2015.

The Trump administration is targeting trade in its quest to boost economic growth. President Donald Trump has vowed to make sweeping changes to U.S. trade policy, starting with pulling out of the 12-nation Trans-Pacific Partnership trade pact.

Trump also wants to renegotiate the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico. Economists, however, warn that the America-first or protectionist policies being pursued by the administration are a threat the country’s economic health.

Economists polled by Reuters had forecast the trade gap slipping to $45.0 billion in December.

When adjusted for inflation, the deficit decreased to $62.3 billion from $63.9 billion in November. The improvement in the deficit at the end of the year could set up trade to be a modest drag on growth in the first quarter.

U.S. financial markets were little moved by the report as the government published an estimate of the goods deficit last month. Trade slashed 1.7 percentage points from gross domestic product in the fourth quarter, leaving output rising at a 1.9 percent annualized rate. The economy grew at a 3.5 percent pace in the third quarter.

EXPORTS INCREASE BROADLY

In December, exports of goods and services increased 2.7 percent to $190.7 billion, the highest since April 2015, as shipments of advanced technology goods such as aerospace, biotechnology and electronics, hit a record high.

There were increases in exports of industrial supplies and materials, capital goods, consumer goods and motor vehicles.

Still, exports remain constrained by relentless dollar strength. The dollar gained 4.4 percent against the currencies of the United States’ main trading partners last year.

Exports to the European Union jumped 10.1 percent, with goods shipped to Germany surging 12.4 percent.

A Trump trade adviser has accused Germany of unfairly benefiting from a weak euro. Exports to China, another sore point for Trump, fell 4.1 percent.

Imports of goods and services rose 1.5 percent to $235.0

billion in December, the highest level since March 2015. Part of the increase in the import bill reflects higher oil prices, as well as strengthening domestic demand.

The price of imported crude oil averaged $41.45 in December, the highest since September 2015. Food imports hit a record high, as did those of motor vehicles.

Imports of goods from China fell 7.6 percent in December. Germany saw a 1.4 percent increase in merchandise shipped to the United States in December.

With both exports and imports falling, the politically sensitive U.S.-China trade deficit dropped 9.0 percent to $27.8 billion in December. The trade deficit with China decreased $20.1 billion to $347.0 billion in 2016.

The trade gap with Germany declined 6.2 percent to $5.3 billion in December. The trade deficit with Germany narrowed $10.0 billion to $64.9 billion last year.

The United States also saw big declines in its trade deficits with Canada and Mexico in December.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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