U.S. Dollar Firms after Trade Deficit Falls to Lowest Level in 16 Months

June U.S. Dollar Index futures rose, recovering earlier losses as a smaller-than-forecast U.S. trade deficit in March will likely boost the government’s revised reading on economic growth in the first quarter. The index last traded 93.28, up 0.349 or +0.38%.

The trade deficit narrowed to $40.4 billion in March, a drop of 13.9 percent from February, the Commerce Department reported Wednesday. It was the smallest trade gap since November 2014. Exports slipped 0.9 percent to $176.6 billion. Imports declined 3.6 percent to $217.1 billion. It marked the largest percentage drop since February 2009.

Earlier in the session, the dollar index weakened after ADP said private sector job creation slowed even further last month as firms added just 156,000 jobs in April. Economists polled by Reuters expected the number to come in at 195,000. In March, private payrolls were revised down 6,000 to 194,000.

In other economic news, orders to U.S. factories advanced by a modest amount in March, reflecting strong demand in the volatile category of defense equipment.

Factory orders rose 1.1 percent, rebounding from a 1.9 percent drop in February, the Commerce Department reported on Wednesday. It was only the second increase in total orders in the past five months as American manufacturers have struggled with a weak global economy, a strong dollar and a big fall in oil prices.

Non-farm productivity declined 1% in the first quarter vs. fourth quarter, according to preliminary estimate from the Labor Department. Consensus projections called for a 1.2% decrease. Labor costs jumped 4.1%, above estimates for a 3.5% rise.

The U.S. also reported that the services sector grew at a faster-than-expected rate in April, according to two key readings released earlier today.

The Institute of Supply Management’s non-manufacturing index rose to 55.7. It had been expected to improve to 54.8 from 54.5. A reading above 50 indicates expansion.

ISM also said the index measuring new orders climbed, the employment gauge rose for a second straight month, while the prices index rose for the first time in three months.

Markit’s final services purchasing manager’s index (PMI) came in at 52.8 for April. The flash reading released last week was 52.1

Growth happened at the fastest pace in three months, led by a greater volume of incoming work as client demand increased. However, job creation slowed down. Markit’s survey found that 160,000 jobs were added during the month, down from an average of 200,000 in the first quarter.

The U.S. Dollar firmed because the PMI surveys indicated the economy was continuing to pick itself up after the stagnation seen in February, with growth accelerating for a second successive month in April. However, there are still some concerns about the rate of expansion that remains tepid, reliant on sluggish growth in services as manufacturers reported a stalling of production.

Finally, U.S. crude oil futures pared gains on Wednesday and Brent crude turned negative after U.S. government data showed crude inventories rose more than expected.

U.S. commercial crude stockpiles rose by 2.8 million barrels in the previous week to a total of 543.4 million barrels. Traders were looking for an increase of 1.7 million barrels.

Gasoline stocks increased by about 500,000 barrels last week, and distillate fuel inventories fell by 1.3 million barrels. Weekly U.S. crude production figures showed output fell by about 113,000 barrels per day.

June crude oil futures are currently trading at $44.99, up $0.58 or +1.31%. Oil prices were also underpinned by the possibility of a drop in production due to the wildfires in the Canadian oil province of Alberta.