The dollar was knocked sharply lower Thursday as traders were surprised by government estimates of slowing economic growth and rising inflation in the United States.
Gold, which soared earlier in the week, also headed lower in volatile trading. Republic National Bank in New York said gold bullion was bid at $314 an ounce, down $7 from Wednesday.
The dollar's most dramatic decline was against the British pound, which surged to $1.1900 in London late Thursday, its highest level since Dec. 17, 1984. Sterling had been quoted at $1.1475 the day before and has recovered from an all-time low of $1.0395 during trading Feb. 26.
Later in New York, sterling was quoted at $1.1825, against $1.1445 Wednesday.
With its 1.85% drop Thursday, the dollar now has fallen 4.7% this week and is down 6.4% since peaking on Feb. 25, according to the Federal Reserve Board's index that measures the dollar against the currencies of 10 other industrial nations.
The major factor in Thursday's slide was a report by the Commerce Department estimating the U.S. economy is expanding at an annual rate of 2.1% in the yet-to-be-completed first quarter, against 4.3% in the final three months of last year. At the same time a broad measure of inflation was reported to be rising at a 5.4% annual clip, the steepest climb in almost three years.
The figure for the gross national product, the value of the goods and services produced in the economy, "was lower than the most pessimistic estimates," while the rise in inflation was unexpectedly high, said Trevor Woodland, national sales manager for foreign exchange at Harris Trust & Savings Bank in Chicago.
As a result, the dollar, which had climbed in early European trading following last-minute projections that GNP growth would be on the order of 4%, promptly plunged.
"This number confirms the economy is not growing as strongly as some economists had been expecting," Woodland said.
The weak growth and concern about earlier closings of savings and loans in Ohio also reduced traders' concerns that the Federal Reserve would move to make credit scarcer, something that would push interest rates higher and make dollar-denominated investments more attractive.
And a Fed report late in the day of a $2.1-billion decline in the nation's basic money supply in the week ended March 11 calmed fears of another worry--that money- supply growth was becoming so rapid it would force the Fed to clamp down on credit.
But the money-supply report had little impact on currency markets.
"GNP was such a surprise and had such an effect on the dollar that anything else would be an anticlimax," said David Wilson, a foreign-currency analyst at the New York branch of the Bank of Montreal.
Late dollar rates in Europe, compared to late rates Wednesday, included: 3.2000 West German marks, down from 3.2655; 2.7175 Swiss francs, down from 2.7505; 9.8250 French francs, down from 9.9700; 3.6050 Dutch guilders, down from 3.6860; 2,055.50 Italian lire, down from 2,067.75, and 1.3680 Canadian dollars, down from 1.3725.
Tokyo markets were closed for a holiday, but the dollar was quoted in London at 254.05 Japanese yen, compared to Tokyo's closing rate of 256.90 yen on Wednesday. By the end of the trading day in New York, the dollar was quoted at 254.70 yen, against 257.225 yen Wednesday.
Gold in Wide Swings
Dollar rates in New York following release of the money-supply figures, compared to rates Wednesday, included: 3.2075 West German marks, down from 3.2650; 2.7255 Swiss francs, down from 2.7605; 9.8150 French francs, down from 9.9900, and 1.3605 Canadian dollars, down from 1.3745.
Gold bullion, which rocketed higher in the United States on Tuesday and shot even higher earlier Wednesday in Asia before beginning to give up its gains, was subjected to wide swings Thursday.
In Hong Kong, gold plunged $26.93 to close at a bid of $319.75 an ounce.
In Zurich, gold opened at $320.50 an ounce, fell to $309 and then recovered to close at $320.50, unchanged from Wednesday.
In London, gold was quoted at a late bid of $321.50, up from $321 Wednesday.