Dollar Drops Sharply in Hectic Trading

The dollar fell sharply in hectic trading Tuesday, undercut by heavy selling of dollars by traders trying to minimize their losses. Gold prices, although mixed, ended the day up.

Bullion was quoted at $340 an ounce at 4 p.m. EST at Republic National Bank, up 50 cents from Monday’s bid.

The dollar fell about 6 West German pfennings and almost 3 Japanese yen.

“The market is a little nervous,” said Earl Johnson, an assistant vice president at Harris Trust & Savings Bank in Chicago. “I think it’s mostly technical.”

The heavy dollar sales were triggered when the currency fell below a technical level at which traders sell dollars to minimize their losses, Johnson said. Dealers also said the Bank of France was rumored to have sold large amounts of dollars and bought West German marks following Sunday’s currency realignment by the eight members of the European Monetary System in which the French franc was devalued by up to 6%.

The American currency also was weakened by speculation that the U.S. Federal Reserve is considering a cut in the 7% discount rate it charges on loans to commercial banks, dealers said. Lower U.S. interest rates make dollar-denominated investments less attractive.

In London, the British pound rose to $1.4745 from $1.4523, boosted by rising North Sea oil prices and relatively high interest rates.

In Tokyo, the dollar rose for the fourth straight trading day, closing at 181.45 yen, up from 181.15 yen at Monday’s close.

Gold for current delivery rose 60 cents to close at $340 an ounce on the Commodity Exchange in New York.

In London, gold prices fell to a late bid price of $337.50 an ounce, down from $339 bid late Monday.

In Zurich, gold rose to $340.50 bid, up from late Monday’s bid of $339.50

Earlier, in Hong Kong, gold rose to a closing bid of $340.16, up from $336.84 bid at Monday’s close.

Silver bullion rose in London to a late bid price of $5.34 an ounce, up from $5.315 bid late Monday. On the Comex, silver rose 3.6 cents to $5.376.