Dollar at Postwar Low Against Yen; Gold Up

The dollar dived to a postwar low against the Japanese yen Friday and fell sharply in relation to most other major currencies as speculation snowballed that U.S. interest rates were about to drop.

Gold prices surged in early trading after Japan announced that it was buying 200 tons of the precious metal for a commemorative coin, but prices receded later in the day, traders said. Republic National Bank of New York said gold traded at $344 an ounce as of 4 p.m. EST, up from $339.50 quoted late Thursday.

As foreign exchange markets were closing in New York, the Federal Reserve Board cut the discount rate, a move that had been widely anticipated. But the reduction was only half a percentage point to 6.5%, not 6% as some economists had predicted. That helped the dollar recover a bit in last-minute New York transactions.

‘Bearish Trend’

The discount rate is the Fed’s loan fee charged to financial institutions, and its reduction was expected to push down interest rates, which would stimulate economic growth but make dollar-denominated investments worth less.

“It looks like the bearish trend for the dollar just continued today, and the expected cutting of the discount rate was encouraging that feeling,” said Martin S. McAuley, vice president of foreign exchange at Continental Illinois Bank & Trust in Chicago.

In Tokyo, where the world’s trading day begins, the dollar gained against the yen, closing at 175.86 yen, up from 175.40 at the close Thursday. But later, in London, the dollar fell to a postwar low of 174.30 yen, and, by the time trading closed in New York, the dollar was trading at a new postwar low of 174.125 yen, compared to 176 yen at the close Thursday.

Those figures broke the previous low of 174.90 yen set March 18. Just prior to the discount rate cut, the dollar had fallen to the 173-yen level.

Pound Falls

The British pound fell in London to $1.51425, down from the $1.52 it cost late Thursday. By the time trading closed in New York, the pound was trading for $1.52, but that was less than the $1.5232 that it cost late Thursday.

Late dollar rates in New York, compared to levels late Thursday, included: 2.2190 West German marks, down from 2.2285; 1.8565 Swiss francs, down from 1.8580; 1.38525 Canadian dollars, down from 1.39025, and 7.0765 French francs, down from 7.1000.

Gold prices surged by up to $10 in early trading, touching $349 an ounce in Zurich but fell back later.

In London, the metal rose to a late bid price of $344.00, up from $339.50 bid late Thursday. In Zurich, it was quoted at a late bid price of $346, up from $339 bid late Thursday.

On the Commodity Exchange in New York, gold bullion for current delivery was quoted at $344.40 an ounce, up $5.30.