Currency : Dollar Dives in Wave of Selling After Trade Report
The dollar fell steeply Wednesday after the release of poor U.S. trade figures rekindled bearish sentiment and brought on heavy selling.
The dollar fell nearly two pfennigs against the West German mark, to close at 1.8050 marks versus 1.8225 Tuesday. Against the Japanese yen, the dollar fell to 142.30 from 143.90 on Tuesday.
“The numbers were bad. Everyone’s first reaction was to sell,” said a currency dealer with a U.S. bank in Frankfurt.
The lower prices helped gold, although buying was lackluster. Republic National Bank of New York said gold was bid at $461.25 as of 4 p.m. EDT, up $2.50 an ounce from $458.75 late Tuesday.
The Commerce Department said the U.S. merchandise trade deficit was $15.7 billion in August, less than the record of $16.5 billion in July but still more than expected by investors.
Dollar traders said the trade gap reinforced a widely held market view that the dollar will have to resume its 2 1/2-year decline to reduce the trade gap. A lower dollar makes U.S. products more competitive by reducing their cost abroad and making imported goods more expensive in the United States.
The dollar fell about 1% against several major currencies soon after the trade report was released but then stabilized.
Further Decline Seen
Traders appeared unwilling to sell dollars aggressively because of fears of intervention by central banks to support the U.S. currency, said James Vick, senior corporate trader for Manufacturers Hanover Trust Co.
“It’s going to continue to decline from here, despite the fact that the central banks may start intervening,” one trader said.
With nowhere for the dollar to go, pressure was transferred to stock and bond prices, Vick said.
The Dow Jones industrial average fell a record 95.46 to 2,412.70, and bond prices sagged as the yield on the benchmark 30-year Treasury bond surged above 10% for the first time in two years.
Before the release of the trade report, the dollar closed in Tokyo at 143.95 Japanese yen, up from Tuesday’s 143.90. Late Wednesday, the dollar traded in London at 142.73 yen. At the close of trading in New York, the dollar fell to 142.30 yen from 143.87 late Tuesday.
In London, one British pound cost $1.6527 late Wednesday, up from Tuesday’s late $1.6465. The pound rose in New York to $1.6579 from $1.6460 late Tuesday.
Canadian Dollar Up
Other late dollar rates in New York, compared to late rates Tuesday, included: 1.8060 West German marks, down from 1.8220; 1.4957 Swiss francs, down from 1.5114; 6.0200 French francs, down from 6.0685, and 1.3059 Canadian dollars, up from 1.3048. A quote for Italian lire was not available.
The Canadian dollar’s small move upward against the dollar was probably the result of corporate needs for the U.S. currency, said John Shupe, a trader for Royal Bank of Canada in New York. The North American currencies often move in tandem.
Other late dollar rates in Europe, compared to those Tuesday, included: 1.8115 West German marks, down from 1.8225; 1.5020 Swiss francs, down from 1.5092; 6.0350 French francs, down from 6.0662; 2.0380 Dutch guilders, down from 2.0505; 1,306.25 Italian lire, down from 1,314.50, and 1.3056 Canadian dollars, down from 1.3060.
In Hong Kong gold closed at a bid of $460.09, down from $460.54 late Tuesday. Bullion was bid late at $460 in London, up from $459.25 Tuesday. The late price in Zurich was $459.50 bid, unchanged.
On the Commodity Exchange in New York, gold for current delivery closed up $2.70 at $461.80.
Silver bullion traded late in London at a bid of $7.85, up from $7.70. On New York’s Commodity Exchange, silver for current delivery rose to $7.802 from $7.705 late Tuesday.
