CURRENCY : Dollar Benefits From Rally in Financial Markets
A post-holiday rally in the U.S. financial markets sustained the dollar’s strength in foreign exchange Wednesday despite a slight dip in early Japanese trading.
Gold prices also continued to climb. Republic National Bank in New York said gold bullion quoted a late bid of $457.50 an ounce, up from $454.30 late Tuesday. The price has moved up $6.50 over the past two days.
Currency traders said the dollar was benefiting from the surprising rush of bullishness that has infected the American stock and bond markets since investors returned from the long Memorial Day weekend.
Stocks and bonds moved up strongly again Wednesday for the second consecutive day.
Traders said investors appeared sanguine about the level of U.S. interest rates and the pace of economic growth and were jumping into equities and bonds to snap up bargains. The strength of the U.S. currency mirrored the investors’ new-found confidence in the American markets.
“The sentiment has been so bearish for the dollar, most money has been on the sidelines,” observed Ronald Holzer, chief dealer for Harris Trust & Savings Bank in Chicago. “I think we’re seeing the first realization of fresh money moving back into the U.S.”
Holzer said currency traders were restructuring their positions in light of the sudden shift of capital into American stocks and bonds. But he cautioned, “The longevity of this thing is uncertain.”
The dollar weakened during morning trading in Tokyo after Bank of Japan governor Satoshi Sumita told reporters that he thought a long-term rise in the dollar was unlikely.
But the dollar soon recovered, closing in Tokyo at 125.23 Japanese yen, up from 124.80 Tuesday. In later trading, the dollar traded at 125.25 yen in London and 125.425 yen in New York, compared to 125.235 late Tuesday.
The British pound continued to weaken against the dollar and West German mark. In London, it cost $1.8220 to buy one pound, compared to $1.8385 late Tuesday. In New York, the pound fetched $1.81335, compared to $1.8353 late Tuesday.
Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.7308 West German marks, down from 1.73265; 1.44345 Swiss francs, down from 1.44525; 1.23035 Canadian dollars, down from 1.2333; 5.8425 French francs, up from 5.8300, and 1,286.62 Italian lire, up from 1,284.00.
Late dollar rates in Europe, compared to late Tuesday’s prices, included: 1.7255 West German marks, down from 1.7292; 1.4390 Swiss francs, down from 1.4437; 5.8270 French francs, up from 5.8215; 1.9330 Dutch guilders, down from 1.9333; 1,282.50 Italian lire, up from 1,279.95, and 1.2319 Canadian dollars, down from 1.2357.
Gold, still riding the coattails of the recent strong move in platinum, rose in London to a late bid of $456.50 an ounce, compared to late Tuesday’s $454.80. Gold was higher in Zurich, Switzerland, as well, closing at a bid of $457, compared to $455 Tuesday.
Earlier, the metal closed in Hong Kong at a bid of $458.55, up from $455.80.
At the New York Commodity Exchange, gold bullion for current delivery was quoted at $457, up from $455.
Silver bullion prices rose in London, where the metal was trading at a late bid of $6.79 an ounce, compared to Tuesday’s $6.65.
On the Comex, silver bullion for current delivery was quoted at $6.818, up from $6.60.
Jeffrey Nichols of American Precious Metals Advisors Inc. said that while the metals rally reflected some lingering inflation fears in the commodities markets, it also was a sign of relief among investors who had been expecting further interest rates hikes by the Federal Reserve.
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