Foreign Exchange : Dollar Rallies for 2nd Straight Day

The dollar rallied for the second straight day on Tuesday as dealers scrambled to cover short positions or agreements to sell the currency.

The dollar also was supported by speculation in the markets that West Germany would cut its discount rate after all and that it would happen on Thursday.

Gold prices fell sharply on profit-taking. Bullion was quoted at $431 an ounce at Republic National Bank in New York, down $9 from Monday’s bid.

“The dollar was up on some short-covering,” said Andre Pelagalli, an assistant vice president for European American Bank. “It’s nothing more than short-covering at the moment.” He described Tuesday’s trading as very choppy.

Last week, with the dollar declining, many dealers sold U.S. currency expecting further falls.

But a surge on Monday--based on fears that European governments would intervene to support the dollar--triggered a rush to buy dollars back, and this sent the dollar higher on Tuesday, analysts said.