CURRENCY : Unfounded Rumor About Chancellor of Exchequer Lifts Pound

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Associated Press

Britain’s pound rose sharply Monday on unfounded rumors that the government’s key advocate of currency weakness was preparing to quit, reinforcing predictions of a $2 exchange rate for sterling in the near future.

Elsewhere in foreign exchange dealings, the dollar was relatively stable, while gold prices rose. Republic National Bank of New York quoted bullion at $447.30 an ounce as of 4 p.m. EDT, up from $443.25 late Friday.

Money traders said action focused on the pound largely because of rumors, later denied by the British government, that Chancellor of the Exchequer Nigel Lawson was about to resign.


As the top British treasury official, Lawson is seen as an important opponent of an expensive pound. In his view, the rising currency could hurt Britain’s economy by making exports less competitive, similar to what happened in the United States earlier this decade when the dollar’s value rose.

Unconfirmed rumors also circulated Monday of a large commercial order for pounds, which forced dealers who had sold borrowed pounds to buy them back, a price-boosting market influence known as short-covering.

Traders also were influenced by a forecast from the investment bank Goldman Sachs International Corp., quoted in the Sunday Times, suggesting that the pound could rise to $2 and 3.20 West German marks. The pound is now worth about 3.16 marks.

Seeks Highest Interest

With the dollar’s recent stability, the market has become preoccupied with the pound because of the relatively high interest rates offered in Britain, which make that currency more attractive to foreign investors.

“If I tell you exchange rates will be relatively stable, then what do you want to do with your wealth? Throw it to the country with the highest interest rates,” said Varick Martin, vice president of foreign exchange at the Union Bank of Switzerland’s New York branch.

In London, the pound rose to $1.8790 from $1.8730 late Friday. Later in New York, the pound was worth $1.8815, compared to $1.8630.


Arthur Liming, analyst at the commodities futures firm LNS Financial Group in Chicago, said many traders believed that the pound would hit $1.92 soon.

Zlatko Glamuzina, a trader at the New York branch of Banco di Sicilia, said he believed that the pound would rise significantly after it passes $1.90. “Once we go over that, we’ll go to $2 a pound,” he said.

In Tokyo, the dollar slipped 0.01 Japanese yen to close at 124.87 yen. Later in London, it fetched 124.82 yen. By the time trading concluded in New York, the dollar fetched 124.80 yen, lower than the London price but slightly higher than Friday’s closing price in New York of 124.77 yen.

Gold Prices Rise

Other late dollar rates in New York, compared to late Friday’s, included: 1.6815 West German marks, up from 1.6793; 1.4000 Swiss francs, up from 1.3995; 1.2385 Canadian dollars, up from 1.2373; 5.7060 French francs, down from 5.7090, and 1,249.50 Italian lire, down from 1,252.375.

Late dollar rates in London, compared to late Friday’s, included: 1.6820 West German marks, up from 1.6805; 1.4010 Swiss francs, down from 1.4015; 1.8805 Dutch guilders, down from 1.8860; 1,250.00 Italian lire, down from 1,254.00; 1.2396 Canadian dollars, up from 1.2375, and 5.7075 French francs, down from 5.7230.

Gold sold in London at a late bid of $444 an ounce, up from $442.10 late Friday. In Zurich, Switzerland, gold rose to $445 from $443, and in Hong Kong it was $446.66, compared to $445.87. On the Commodity Exchange in New York, gold bullion for current delivery was quoted at $447.30, up $3.60.


Silver was quoted in London at a late bid price of $6.43 an ounce, up from $6.36 Friday. The New York Comex price was $6.47, up 8.9 cents.

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