Dollar Stages Sharpest Rise in 3 Months
The dollar shook off early losses and rose broadly Thursday, staging its sharpest one-day rise in more than three months amid speculation that U.S. interest rates may be bottoming out and American economic activity may begin picking up.
Analysts said trading was sometimes hectic as investors who earlier had sold borrowed dollars in hopes of further declines scrambled to buy the currency to limit their losses.
The price of gold rose in Hong Hong but then fell sharply in response to the dollar’s recovery later in the day. Republic National Bank of New York said gold bullion was bid at $318.50 an ounce as of 4 p.m. EDT, down $4.50 from the late bid Wednesday.
Typical of the dollar’s performance was its swings against the Japanese yen.
As trading began in Tokyo, the dollar fell to its lowest level against the yen since June 22, 1984, dropping to 236.70 yen from 237.63 yen Wednesday. But later in London, the dollar bounced back to 238.00 yen, and by the end of the trading day in the United States, the dollar had climbed to 238.25 yen from 237.80 yen late Wednesday.
Temporaray Upturn
The dollar’s rebound Thursday interrupted a steep slide, and some analysts viewed the gains as a “correction,” or a temporary upturn in a declining market.
The Federal Reserve Board said its index of the dollar’s value against 10 major currencies rose 1.14% on Thursday. That would be the sharpest rise since the 1.47% increase April 4.
The gains came despite confirmation of sluggish economic activity in the United States for the first half of the year. The Commerce Department put second-quarter economic growth at an annual rate of 1.7% following the anemic 0.3% increase of the first three months of the year.
But Commerce Secretary Malcolm Baldrige said he was confident of a stronger performance in the months ahead.
Meanwhile, the Federal Reserve said industrial production was up 0.1% in June and revised an earlier report of a decline in May to a slight gain. The figures were stronger than traders had expected.
In addition, interest rates in the United States rose and the dollar rallied as Fed Chairman Paul A. Volcker appeared before Congress for a second day in testimony viewed in financial markets as a sign that the central bank will not push interest rates any lower.
Volcker told the Senate Banking Committee that a continued sharp decline in the dollar could create economic problems and that the Fed does not intend to push the dollar lower through monetary policy.
‘About to Bottom’
“He implied that interest rates are just about at the bottom if not yet there,” said David Arbesman, a first vice president at Prudential-Bache Securities in New York.
Arbesman said that, while interest rates rose in the United States, expectations increased for declines in interest rates in West Germany after the Deutsche Bundesbank raised the limit for bank borrowing from the German central bank.
High interest rates in the United States in comparison to rates elsewhere make returns attractive on dollar-denominated investments.
The dollar gained ground against the British pound, with sterling falling to $1.40775 in London from $1.4138 on Wednesday. Later in New York, the pound had slipped to $1.4015 from $1.4115 late Wednesday.
Other late dollar rates in Europe, compared to late rates Wednesday, included: 2.8720 West German marks, up from 2.8320; 2.3675 Swiss francs, up from 2.3345; 8.6750 French francs, up from 8.6000; 3.2205 Dutch guilders, up from 3.1855; 1,846.50 Italian lire, up from 1,832.50, and 1.3479 Canadian dollars, up from 1.3470.
A Federal Reserve report late Thursday of a $200-million rise in the basic U.S. money supply in early July was close to expectations and had no impact on currency markets, traders said.
Dollar rates in New York following the 4:30 p.m. EDT release of the weekly money supply report, compared to late rates Wednesday, included: 2.8820 West German marks, up from 2.8425; 2.3786 Swiss francs, up from 2.3385; 8.7475 French francs, up from 8.62375, and 1.34725 Canadian dollars, down from 1.3491.
