Dollar Falls to 6-Year Low Against Mark

The dollar closed sharply lower Monday, falling to its lowest level against the West German mark in nearly six years. The drop was blamed on comments on the currency by a top Japanese official and a market belief that the U.S. economy will be weak next year.

The dollar closed at 1.9450 marks, down nearly two pfennigs from 1.9605 marks on Friday. The price was the lowest since the dollar hit 1.9401 marks in January, 1981.

In earlier trading, the dollar had fallen even lower, moving briefly through the key 1.94-mark barrier in Europe to 1.9390 marks.

The dollar was also lower against the Japanese yen, falling to 159.55 yen from 159.80 last week.

“There was just not enough commercial demand to stop it going lower,” said one trader, noting that the severity of the dollar’s fall was worsened by the thinness of the market.

The dollar selloff began after Bank of Japan Governor Satoshi Sumita said in an interview that the Tokyo central bank would tolerate a dollar worth 159 to 160 yen.

The selling snowballed and was also influenced by a belief in the foreign exchange market that the U.S. economy will be sluggish for the first part of 1987, leaving room for a cut in interest rates by the Federal Reserve.

In the continued absence of any hard news, the selling gathered momentum in Europe and then the United States. “New York just came in and began selling,” said one trader. “Anyone who had dollars wanted to get rid of them,” added another.

The selloff came despite fears that some central banks, especially the West German Bundesbank, would intervene in the market to stop the mark’s rise against the dollar.

Karl Otto Poehl, president of the Bundesbank, was quoted Sunday as saying that a further decline in the dollar’s value could harm the West German economy and increase pressure on European currencies.

“A further depreciation of the dollar could seriously restrict West German economic growth and aggravate tensions within the European monetary system,” Poehl told the West German newspaper Welt am Sonntag.

Dealers said that despite Poehl’s comment, no official open market intervention to stem the dollar’s decline has been detected.

Currency dealers said trading was too thin ahead of the New Year holiday to give a firm guide to the dollar’s underlying value. Dealers in New York cautioned against reading too much into the dollar’s decline due to the thin market.