CURRENCY : Dollar Climbs Higher as Banks Boost Prime Rate

The dollar got a boost from rising interest rates and closed higher against most major currencies in domestic trading Wednesday after dipping overseas.

Gold prices were mixed. Republic National Bank of New York said gold bullion was bid at $448.80 an ounce as of 4 p.m. EDT, down from $449.60 late Tuesday.

The dollar began its climb shortly after noon, when the first of a number of major banks announced they would hike their prime lending rates to 9% from 8.5%.

Frank Watson, a vice president at Swiss Bank Corp., noted that the increase had been expected. Still, traders had to buy dollars to cover their positions. The dollar also was supported by indications that the Federal Reserve has tightened credit. “The dollar cannot go a lot lower in this environment of higher interest rates,” said Ronald Holzer, chief dealer at Harris Trust & Savings Bank in Chicago.

Trading was relatively dull and volume was light.

The foreign exchange market appeared little affected by a report that Britain’s Chancellor of the Exchequer Nigel Lawson said major industrialized nations might coordinate a worldwide hike in interest rates.

The comment, published in overseas editions of the Wall Street Journal, sent the stock markets into a tailspin, although the newspaper issued a statement saying it had failed to fully report Lawson’s remarks.

Open to Interpretation

“People were looking at (the comments) but didn’t know what he meant,” Holzer said.

Traders could interpret the comments several ways. “If the stock market really came off, that could mean a flight to quality by investors, and that’s bullish for the dollar,” Watson said. “But it’s bearish for the dollar if interest rates rise” in Europe and Japan.

Trading was quiet in Europe as many banks wound down their operations ahead of today’s Ascension Day holiday, which is observed by several countries.

In Tokyo, the dollar fell 0.39 Japanese yen to a closing 124.24 yen. Later in London, it was quoted at a lower rate of 124.23 yen. In New York, the dollar finished at 124.475 yen, up from 124.38 yen.

In London, it cost $1.8870 to buy one British pound, more expensive than $1.8825 late Tuesday. But in New York, one pound cost $1.8815, cheaper than Tuesday’s $1.88425.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.68275 West German marks, up from 1.67795; 1.3995 Swiss francs, up from 1.39435; 5.70375 French francs, up from 5.6905; 1,251.50 Italian lire, up from 1,247.35, and 1.2314 Canadian dollars, down from 1.2380.

Gold Prices Mixed

Other late dollar rates in Europe, compared to late Tuesday’s prices, included: 1.6773 West German marks, down from 1.6783; 1.3935 Swiss francs, down from 1.3955; 5.6912 French francs, up from 5.6905; 1.8830 Dutch guilders, up from 1.8815; 1,249.50 Italian lire, up from 1,248.00, and 1.2315 Canadian dollars, down from 1.2375.

Gold prices rose overseas. In London, gold rose to a late bid of $449.30 an ounce, compared to late Tuesday’s $446.50. In Zurich, Switzerland, gold closed at $449.50, compared to $446.50 late Tuesday. Earlier in Hong Kong, gold rose $2.73 to close at $451.68.

But on the New York Commodity Exchange, gold closed at $449.70, down from $450.10.

Silver finished higher at $6.552 an ounce on New York’s Comex, compared to $6.45 on Tuesday. In London the metal was trading at a late bid of $6.55, up from $6.45.

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