The dollar exploded upward in frantic trading Friday, propelled higher by news of an unexpectedly strong narrowing of the U.S. trade deficit for November.
Gold prices plummeted in tandem with the dollar's advance, finishing sharply lower in New York after rising in the Far East and stabilizing in Europe. Republic National Bank of New York quoted a bid price for gold of $473.75 a troy ounce at about 1 p.m. PST, down from $486.35 late Thursday.
The dollar jumped to its highest levels against major currencies in about two months. It gained nearly 5 Japanese yen and almost 6 pfennigs against the West German mark.
The currency markets had been anxiously awaiting the publication of the trade figures for weeks, with trading slowing to a trickle in recent days. The markets sprang back to life when the Commerce Department reported early in the U.S. business day that the trade deficit narrowed a sharp 25% in November to $13.2 billion--its best improvement in seven months.
The $4.4-billion decline, produced by a $2.4-billion drop in imports and a $2-billion rise in exports to a record level, was far better than most analysts had expected and unleashed a tidal wave of dollar buying.
Earlier estimates and market rumors of the November shortfall had ranged as high as $20 billion.
"It was a good number, so everyone took the dollar higher," said Dan Holland, a vice president of foreign exchange for Discount Corp. in New York.
The dollar soared to 130.95 Japanese yen in late New York trading from 126.17 yen late Thursday. Earlier, in London, the dollar traded at 130.42 yen, up from 126.95 yen in Tokyo Thursday. The Tokyo market was closed for a national holiday Friday.
Traders said the dollar also got a boost from a several other encouraging economic reports Friday, although the main impetus for the currency came from the trade figures. The government also announced that industrial production showed a 0.2% rise in December as U.S. industry turned in its best performance since 1984.
In yet another report, wholesale prices rose a modest 2.2% in 1987, but plunged 0.3% in December, the steepest one-month drop since July, 1986.
The positive economic indicators fueled "growing confidence that the U.S. economy is doing much better than people thought," said Marc Chandler, a currency analyst for Dean Witter Reynolds Inc. in Chicago. "I think we're seeing a lot of pent-up demand for dollars."
In London, it cost only $1.7768 to buy one British pound, compared to $1.8195 late Thursday. At the end of New York trading, the pound had tumbled to $1.7730 from $1.8275.
Late Dollar Rates
Other late dollar rates in New York, compared to late Thursday, included: 1.6885 West German marks, up from 1.6295; 1.3785 Swiss francs, up from 1.3300; 5.6935 French francs, up from 5.5400; 1,235.00 Italian lire, up from 1,200.50; and 1.2883 Canadian dollars, down from 1.2910.
Other late dollar rates in Europe included: 1.6785 West German marks, up from 1.6385 marks; 1.3723 Swiss francs, up from 1.3348; 5.6600 French francs, up from 5.5285; 1.8835 Dutch guilders, up from 1.8385; 1,232.50 Italian lire, up from 1,205.00, and 1.2860 Canadian dollars, down from 1.2912.
Gold was quoted in London at a late bid price of $481.75 a troy ounce, unchanged from late Thursday. In Zurich, Switzerland, gold also was unchanged at $481.50 an ounce. Earlier, in Hong Kong, gold rose $4.08 to a closing bid of $486.14.
Gold Down Sharply
Gold for current delivery closed at $473.60 a troy ounce on the New York Commodity Exchange, down sharply from $487 late Thursday.
Silver bullion prices fell on the London market where the metal was trading at a late bid price of $6.78 a troy ounce, compared to $6.80 late Thursday.
On New York's Comex, silver for current delivery closed at $6.600 a troy ounce, down from $6.872 late Thursday.