CURRENCY : Dollar Mixed as Edginess on Trade Report Mounts

The dollar was mixed against major currencies Wednesday as traders weighed prospects for lower U.S. interest rates while awaiting Friday’s report on the U.S. trade deficit for December.

Gold prices fell. At Republic National Bank of New York, the late bid for gold was $440.30 an ounce, down $1.20 from Tuesday.

“The pawns are moving, but the game hasn’t begun,” said Robert Ryan, a foreign exchange analyst at Irving Trust Co.

He said the market was getting edgy amid conflicting expectations for the trade figure, which he called “as important as last month.”

A larger than expected decline in the November figure helped strengthen the U.S. currency last month because it indicated growing demand for dollars to pay for increasing U.S. exports.

Friday’s figure is getting special attention because it could indicate whether the November drop was the beginning of a trend or a one-time fluke.

If it holds close to--or falls below--November’s $13.2 billion, the new figure would add strength to a case that the deficit is in fact turning around. But if the figure is higher, it would undermine the optimism that greeted last month’s announcement.

Analysts said uncertainty has been dampening enthusiasm for buying dollars all week.

Ryan and Albert Soria, an analyst at Swiss Bank Corp., also said a sharp plunge in the federal funds rate, the interest on overnight loans between banks, on Tuesday and Wednesday contributed to the dollar’s weakness on Wednesday.

Rate Plunged to 4%

The fed funds drop fueled “expectations of a discount rate cut” by the Federal Reserve Board, Soria said. The discount rate is the rate the central bank charges for loans to financial institutions.

At one point Wednesday, the rate hit 4%, Soria said. By the end of the day, however, it had moved back up to 6.25%.

Falling U.S. interest rates weaken the dollar because they weaken demand for dollar-denominated securities.

In Tokyo, where the trading day begins, the dollar eased to 129.03 Japanese yen from 129.07 yen at Tuesday’s close. Later, in London, it slipped to 129.00 yen. In New York, it stood at 129.05 yen, up from 128.82 yen.

In London, the British pound rose to $1.7640 from $1.7425 late Tuesday. In New York, it cost $1.7578 to buy one pound, more expensive than $1.7523 on Tuesday.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 169.23 West German marks, down from 169.57; 1.3875 Swiss francs, down from 1.3880; 1.2701 Canadian dollars, up from 1.2683; 5.7165 French francs, down from 5.7225, and 1,248.00 Italian lire, up from 1,247.50.

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