CURRENCY : Dollar Loses Ground Despite Foreign Intervention; Gold Is Off
The dollar declined against most major currencies Wednesday, losing early gains resulting from concerted rounds of European central bank intervention.
Gold prices weakened slightly. At Republic National Bank of New York, gold bullion was selling at $488.60 an ounce as of 4 p.m. EST. That was down 15 cents from Tuesday’s late price.
The dollar started the day on an upswing that accelerated as British, Dutch, Italian, Swiss and West German central banks stepped in to buy an estimated $500 million to support the U.S currency, according to European dealers.
But the rally faded as trading moved to a close in the United States.
Some European analysts suggested that the dollar slipped amid market fears that the West German central bank would not make the expected cut today in its discount rate by half a percentage point to 2.5%.
U.S. analysts disagreed with this view, however, saying the market was taking the discount-rate cut for granted, and would only react if it does not actually take place. The discount rate is the rate charged for loans to other banks.
Market-watchers offered various reasons for the dollar’s late decline.
“I guess the intervention has been keeping the market on edge,” said John Lynam, an analyst at Security Pacific National Bank.
In addition, he said, as the holiday season draws closer, “there’s less and less volume. So the intervention has more impact than we would ordinarily see.”
Despite the late decline, however, Lynam said the dollar had remained in a narrow trading range for most of the session.
“Every time it looked like it would go down, someone would step in to buy it,” he said.
Richard Witten, head of foreign-exchange operations at Goldman, Sachs & Co., said he believed that the dollar hit its lows of the day on late reports of congressional discord over the new budget deficit-reduction package.
In Tokyo, where the trading day begins, the dollar closed at 133.70 Japanese yen, up from 132.42 Tuesday. Later, the dollar traded at 132.85 yen in London, then at 132.57 yen in New York, down from 133.40 late Tuesday.
In London, one British pound cost $1.8110, cheaper for buyers than late Tuesday’s $1.8225. The late New York price stood at $1.8175, more expensive than the $1.8095 of Tuesday.
Other late rates in New York, compared to Tuesday’s late rates, were: 1.6473 West German marks, down from 1.6570; 1.3478 Swiss francs, down from 1.3557; 5.6255 French francs, down from 5.6320; 1,214.50 Italian lire, down from 1,220.00, and 1.3140 Canadian dollars, up from 1.3129.
Gold closed at $488.10 an ounce at the New York Commodity Exchange, down from $490.40 late Tuesday.
Earlier in London, it closed at $489.10 an ounce, down from $492.30. In Zurich, Switzerland, it closed at $491.50, up from $489.50.