CURRENCY : Rumors of Buying by Fed Give Dollar Early Boost

The dollar closed higher Thursday, trading in a narrow range that saw it post slim-to-moderate gains against most major currencies.

The dollar closed at 1.6645 West German marks, up from its Wednesday close of 1.6570 marks. It closed at 127.20 Japanese yen, compared to its Wednesday close at 127.15. The dollar fell to a low of 126.50 yen in Tokyo but reversed its drop after the Bank of Japan intervened.

The dollar received a boost in New York when rumors circulated early in the day that the Federal Reserve had intervened to buy dollars.

But dealers said it appeared that the buy orders came from a large U.S. bank, not the Fed, and that the Fed at most might have placed a few phone calls to inquire about buying dollars.

The dollar has been higher since U.S. trade figures were released last Friday and since massive central bank intervention earlier this month that made speculators hesitate before betting that the U.S. currency would move lower.

“The dollar has lost its upside momentum. The euphoria spurred by the trade deficit has faded,” a New York dealer said. “But people don’t want to test the dollar’s downside for fear of the central banks.”

Dealers said there is widespread doubt that the U.S. trade deficit was improving despite the encouraging report last week.

Many dealers believe that the drop to $13.22 billion in November’s trade gap from a record $17.63 billion in October will be followed by a rebound to well above $15 billion in the December report, they said.

Reports on Monday that Japan’s December trade surplus with the United States widened to $4.91 billion from $4.2 billion in November added to these fears, dealers said.

Also worrying the currency exchanges was U.S. Trade Representative Clayton K. Yeutter’s remark in Tokyo overnight that he did not foresee any major drop in the U.S. trade deficit until the second half of 1988 and or into 1989.

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