CURRENCY : Dollar Jumps in Surprise Move; Gold Prices Slump
The dollar took a sharp step upward Wednesday as a wave of fresh bullish sentiment erupted in early trading overseas and spilled over to propel the U.S. currency higher.
Gold prices slipped. Republic National Bank of New York quoted a bid price of $448.80 for an ounce of gold as of 4 p.m. EDT, down from $451.70 late Tuesday.
Currency traders expressed some surprise at the jump in the dollar, after its slightly weaker finish in Tuesday’s trading. They attributed the move to momentum that gathered force when currency trading began in Tokyo.
“There was a groundswell of (dollar) buying in the Asian trading session,” said William Sullivan, director of money market research at Dean Witter Reynolds Inc. That set the stage for the dollar’s continued strong showing as currency trading followed in Europe and New York.
Traders appeared very satisfied with the outcome of the economic summit meeting of the seven major industrialized countries in Toronto. They focused on the communique the leaders issued Tuesday at the meeting’s conclusion, which hinted that there is room for the dollar to continue its upward move.
“That statement gave the market a signal to buy dollars,” said Earl Johnson, a vice president at Harris Trust & Savings Bank in Chicago.
“This was a big jump considering the quiet trading of the past couple of weeks,” he added.
The economic environment has been ripe for a stronger dollar, considering the better-than-expected U.S. trade report for April as well as rising interest rates.
Curtis Perkins, a trader at Chemical New York Capital Markets Group, noted that there was some profit taking during the session. “The dollar still finished on a strong note, even though some profit taking took it away a bit from the top,” he said.
Rallies in Europe
Bullish sentiment is likely to prevail, at least in the short term. Traders say that if corporations decide that the dollar has bottomed out, they could step up their dollar purchases and give the currency a further lift.
The dollar rallied strongly in European dealings. In Frankfurt, West Germany, currency dealers said limited sales of dollars by that country’s central bank failed to halt the dollar’s rise, which they interpreted as a sign that the Bundesbank tolerated a further rise in the U.S. currency’s value.
But European dealers late in the day said they noticed some signs of nervousness about whether the dollar could hold at its current, elevated levels.
In Tokyo, where the business day ends before Europe’s begins, the dollar jumped 1.27 Japanese yen to close at 127.60 yen. Later in London, it was quoted higher at 128.52 yen. In New York, the dollar closed at 128.95 yen, up from 126.42 yen.
Tokyo traders speculated that the Bank of Japan is unlikely to intervene to support the yen until the dollar threatens to climb above 130 yen.
In London, a long-awaited half-percentage point rise in British interest rates was announced, but the move had only a modest impact on the pound, dealers said.
By late in the trading day, the dollar had edged up against the British pound, which was quoted at $1.7710, down from $1.7855 on Tuesday. In New York, one pound cost $1.7658, cheaper than Tuesday’s $1.7903.
Broad Gold Decline
Other late dollar rates in New York, compared to late Tuesday, included: 1.7818 West German marks, up from 1.7550; 1.4747 Swiss francs, up from 1.4581; 6.0025 French francs, up from 5.9223; 1,320.75 Italian lire, up from 1,301.75, and 1.2102 Canadian dollars, up from 1.2063.
Other late dollar rates in Europe, compared to late Tuesday, included: 1.7740 West German marks, up from 1.7548; 1.4720 Swiss francs, up from 1.4623; 5.9747 French francs, up from 5.9245; 1.9975 Dutch guilders, up from 1.9755; 1,314.50 Italian lire, up from 1,304.00, and 1.2100 Canadian dollars, down from 1.2079.
Gold bullion declined on the Commodity Exchange in New York. It finished at $449.50, down from $451.80 late Tuesday.
Gold also fell overseas, retreating in London to a late bid of $448.50, down from $451. In Zurich, Switzerland, the bid was $448.50, down from 451.50. Earlier in Hong Kong, gold fell $1.29 to close at a bid of $451.46.
Silver was unchanged on New York’s Comex, closing at $7.177 an ounce. In London, the metal was quoted at a bid of $7.06, down from $7.19.
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