Daily Market Review - 1/7/2014

The dollar rose to session highs against the euro and the yen on Tuesday after data showed that the U.S. trade deficit shrank to the lowest level in four years in November.

EUR/USD fell to session lows of 1.3572 and was last down 0.21% to 1.3598.

The greenback was boosted after the Commerce Department said the U.S. trade deficit narrowed to USD34.25 billion in November from a revised deficit of USD39.33 billion in the previous month.

Economists had expected the U.S. trade deficit to widen to USD40 billion. U.S. exports rose 0.9% to a record high of USD194.9 billion, while imports fell 1.4% to USD229.1 billion.

Investors were turning their attention to Wednesday's minutes of the Federal Reserve's December meeting and Friday's U.S. jobs report for December for indications on the possible timing of further reductions in Fed stimulus.

The euro touched session highs earlier after the yield on Irish 10-year government bonds fell to the lowest level since 2009, following strong demand at a sale of the country's new 10-year bonds, the country's first offering since it exited its bailout last month.

But the euro remained under pressure after data released on Tuesday showed that the annual rate of inflation in the euro zone slowed to 0.8% in December from 0.9% the previous month, fuelling fresh concerns over the threat of deflation in the currency bloc.

Elsewhere, data showed that the number of people out of work in Germany fell significantly more than expected last month, while German retail sales rose more-than-forecast in November.

USD/JPY rose to session highs of 104.74 and was last up 0.42% to 104.65.

The dollar was fractionally higher against the pound, with GBP/USD dipping 0.08% to 1.6394 and extended gains against the Swiss franc, with USD/CHF up 0.61% to 0.9095.

The greenback also strengthened against the Australian, New Zealand and Canadian dollars, with AUD/USD down 0.60% to 0.8913, NZD/USD losing 0.20% to trade at 0.8274 and USD/CAD rallying 0.93% to a three-and-a-half year high of 1.0754.

In Canada, data on Tuesday showed that the trade deficit widened to CAD0.94 billion in November from CAD0.91 billion in October. Analysts had expected the deficit to shrink to CAD0.15 billion.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.31% to 81.04.