Concerted Selling by Central Banks Dampens Dollar

The dollar closed lower against other major currencies Thursday but only after repeated and concerted central bank selling, traders said. Gold closed higher in quiet trading.

The dollar succumbed to intervention by the Federal Reserve and key central banks in Western Europe after brushing it off in Wednesday’s trading. The Fed was said to have sold dollars to buy West German marks twice in late trading Thursday in New York, when the market was light and more vulnerable to the action.

The decline was moderate, however. The dollar finished in late New York trading at 1.8980 marks, down from 1.9098 marks late Wednesday. Analysts said a strong residue of bullish sentiment toward the dollar still remained from relatively high U.S. interest rates.

‘Demand at All Levels’

Although a report Tuesday showed that the nation’s trade deficit widened to $12.5 billion in June, currency dealers were impressed that the gap for May was revised downward to $9.8 billion from an original $10.9 billion.

“The market still wants to buy dollars,” said Steve Flanagan, an assistant vice president of foreign exchange at Manufacturers Hanover Trust Co. “There’s just a very good demand for dollars at all levels.”

The dollar was also pushed down by a newspaper report that Commerce Secretary C. William Verity said a dollar at about 1.80 West German marks would be good for everyone. But the Commerce Department quoted Verity as saying that he did not mean to state official U.S. policy in his remarks.

Verity was quoted by a West German paper, Die Zeit, as saying, “we are of the opinion that a (dollar) rate at 1.80 marks is not only favorable for U.S. exports, but is also beneficial for the world economy.”

His comments pushed the currency down but the clarification sent it back up.

Traders are now very quick to take profits and get out of the market because of the wild rate changes, one New York banker said. “Dealers are killed each time an official comment comes out,” another said.

The dollar began to fall immediately after the reports of Verity’s remarks, and within minutes the West German Bundesbank and the Swiss National Bank entered the market to sell dollars, dealers said.

Silver Advances

The West German and Swiss central banks later were joined by the central banks of France, Britain and Belgium, dealers said.

In Tokyo, where trading ends as Europe’s business day begins, the dollar rose 0.78 Japanese yen to close at 133.93 yen. Later in London, it was quoted lower at 133.30 yen. By the end of trading in New York, the dollar was at 133.40 yen, down from 134.01 yen late Wednesday.

In London, the dollar fell against the British pound. It cost $1.6989 to buy one pound, more expensive than $1.6950 late Wednesday. Later in New York, a pound was worth $1.6990, up from $1.6913 late Wednesday.

Other late dollar rates in New York, compared to Wednesday’s late rates, included: 1.5945 Swiss francs, down from 1.6040; 6.4470 French francs, down from 6.4660; 1,406.00 Italian lire, down from 1,412.50; and 1.2295 Canadian dollars, down from 1.2313.

Other late dollar rates in Europe, compared to late Wednesday, included: 1.8980 West German marks, down from 1.9123; 1.5955 Swiss francs, down from 1.6025; 6.4340 French francs, down from 6.4750; 2.1438 Dutch guilders, down from 2.1550; 1,402.75 Italian lire, up from 1,401.50, and 1.2298 Canadian dollars, down from 1.2323.

Gold rose in London to a late bid price of $431 an ounce, up from $428.50 bid late Wednesday. In Zurich, Switzerland, gold also closed at a bid $431, up from $428.50 bid late Wednesday.

Earlier in Hong Kong, gold rose 97 cents to close at a bid $432.28.

Gold for current delivery rose on the New York Commodity Exchange to $432.30 an ounce from $431 late Wednesday. Republic National Bank of New York quoted a bid price for gold of $432 an ounce as of 4 p.m. EDT, up from $430.40 late Wednesday.

Silver bullion prices rose in London, where the metal was trading at a late bid price of $6.66 an ounce, up from late Wednesday’s $6.62.

On New York’s Comex, silver for current delivery rose to $6.675 an ounce from $6.647 late Wednesday.

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