CURRENCY : European Interest Rate Speculation Hurts Dollar
The dollar was narrowly lower against most major foreign currencies Tuesday amid expectations that European interest rates would rise.
Gold prices were mixed. Republic National Bank of New York quoted a bid of $451.70 for an ounce of gold as of 4 p.m. EDT, up from $450.70 late Monday.
“We’re looking at the possibility that some of the European Common Market countries may be raising their interest rates,” said Jack Barbanel, a first vice president with Gruntal & Co.
The Deutsche Bundesbank, West Germany’s central bank, raised its interest rate on one-month securities repurchase agreements Tuesday to 3.5% from 3.25%. Higher interest rates in other countries make their investments more attractive and could depress demand for the dollar.
Barbanel said there was no indication that the Federal Reserve would nudge U.S. interest rates higher, which would make them more competitive with foreign yields.
Rates Moving Higher
However, Ronald Holzer, chief foreign exchange dealer with Harris Trust & Co. in Chicago, said the relatively high federal funds rate was evidence that U.S. rates were edging upward. The fed funds rate, the interest banks charge each other for overnight loans, was quoted at 7.5% late Tuesday.
“It appears all rates are moving higher pretty much in tandem and that portends to keep the dollar fairly well bid,” Holzer said.
The analysts said the economic summit in Toronto, attended by President Reagan and the heads of six other Western nations, had little effect on the dollar.
“The foreign currency markets are for the most part ignoring what’s going on,” said Barbanel. “It’s more of a public relations summit meeting.”
Traders were heartened, however, by a compromise on Third World debt reached at the meeting, Barbanel said.
Less Pressure on Banks
Under the compromise, nations have several options for granting debt relief. They include extending the time period for paying off loans, reducing interest rates or actually writing off a portion of the loans.
The compromise relieves pressure on big U.S. banks that have made billions of dollars in loans to developing nations, Barbanel said.
In Tokyo, where trading was completed before the end of the summit, the dollar rose 0.24 Japanese yen to a closing 126.33 yen. Later, in London, it was quoted at 126.45 yen and in New York, the dollar rose to 126.42 yen from 126.31 yen.
In London, the dollar edged up against the British pound, which was quoted at $1.7855, down from $1.7865 late Monday. In later New York trading, the pound rose to $1.7902 from $1.7844.
Other late dollar rates in New York, compared to late Monday’s prices, included: 1.7549 West German marks, down from 1.7607; 1.4581 Swiss Francs, down from 1.4622; 5.9222 French francs, down from 5.9367; 1,301.75 Italian lire, down from 1,305.50, and 1.2062 Canadian dollars, down from 1.2075.
Bullion Ends Up
Other late dollar rates in Europe, compared to late Monday’s rates, included: 1.7578 German marks, up from 1.7543; 1.4623 Swiss francs, up from 1.4580; 5.9245 French francs, up from 5.9173; 1.9755 Dutch guilders, up from 1.9730; 1,304.00 Italian lire, up from 1,302.00, and 1.2079 Canadian dollars, down from 1.2094.
Gold bullion was up more than $1 on the Commodity Exchange in New York. It finished at $451.80, up from $450.70 late Monday.
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