The dollar staged a broad retreat in European and U.S. foreign exchange markets after rising in Japan on Wednesday as traders sold dollars to cash in on the currency’s recent rise.
Currency dealers said loan problems in the $74-billion U.S. farm credit system, which sent interest rates tumbling in American bond markets, contributed to the dollar’s decline. But the dealers also said the dollar finished Wednesday’s session above the day’s lows against several key currencies.
Gold prices, which earlier fell sharply in response to the dollar’s strength and the end of a strike by South African miners, appeared to stabilize in late U.S. trading. Republic National Bank of New York said gold bullion was bid at $324.75 an ounce, down 50 cents from the late bid Tuesday.
Typical of the dollar’s day was its performance against the Japanese yen.
As trading began in Tokyo, the dollar rose to 239.90 yen from 238.85 yen Tuesday. Later in London, however, the dollar slipped to 239.32 yen. By the end of the trading day in the United States, the dollar had recovered to 239.65 yen against 239.80 yen late Tuesday.
Albert Soria, a vice president at the New York branch of Swiss Bank Corp., said the dollar suffered “a bout of profit taking after the rise we’ve seen in the past week or so.”
Before Wednesday’s decline, the dollar had climbed almost 2.8% since the previous Wednesday.
Soria said traders were awaiting new government reports on the economy in the United States for clues on the dollar’s next move.
A trader at another New York bank said reports of severe loan problems at the farm credit system scared some European investors into selling dollars because of fears of a new financial crisis.
But the trader, whose bank allows him to comment only if he and the institution remain anonymous, said that, when it became clear that the problem did not present an immediate crisis, the dollar rebounded a bit.
Farm credit system spokesmen said Wednesday that a slump in the American farm economy has become so bad that the nation’s largest farm lender would have to seek outside help. But the officials also said that the system still is expected to be able to manage its problems for the immediate future and that an infusion of cash would be necessary in 18 to 24 months.
Late dollar rates in Europe, compared to late rates Tuesday, included: 2.8455 West German marks, down from 2.8540; 2.3438 Swiss francs, down from 2.3507; 8.6825 French francs, down from 8.7075; 3.2005 Dutch guilders, down from 3.2120; 1,899.12 Italian lire, down from 1,905.00, and 1.3675 Canadian dollars, down from 1.3708.
The British pound rose to $1.3702 in London from $1.3695 on Tuesday. Later in New York, sterling rose to $1.3712 from $1.36455 late Tuesday.
Dollar rates in New York as of 4 p.m. EDT, compared to late rates Tuesday, included: 2.84925 West German marks, down from 2.8630; 2.3455 Swiss francs, down from 2.35925; 8.6975 French francs, down from 8.7390, and 1.36705 Canadian dollars, down from 1.36975.
Gold bullion tumbled $8.62 in Hong Kong to close at a bid of $324.84 an ounce.
In Europe, gold slipped $2.70 in London to a late bid of $325.30 an ounce, and gold fell $4 in Zurich to $324.50 an ounce.
On the New York Commodity Exchange, gold bullion for current delivery edged up 30 cents to close at $324.90 an ounce.
Silver fell 13 cents in London to a late bid of $6.03 an ounce. Later on New York’s Comex, silver bullion for current delivery closed at $6.052 an ounce, up 4.5 cents from Tuesday.