Dollar Drops Sharply as Bank Intervention Takes Hold

The dollar finally succumbed to central bank intervention Wednesday, falling sharply because of the concerted selling and comments from U.S. and Japanese officials expressing concern about its recent rally.

“We’re finally seeing the impact of all the intervention,” said Ian Spence of Manufacturers Hanover Trust Co.

Gold prices rose. Republic National Bank of New York said gold was bid at $434.60 an ounce as of 4 p.m. EDT, up from $431.85 late Tuesday.

Traders said the market was influenced in part by a report that Bank of Japan Governor Satoshi Sumita said the dollar’s recent rise against the West German mark was “inexplicable.”

Further undermining the dollar was a sale of hundreds of millions of British pounds for West German marks, said Jerry Egan, a senior trader for Bank of Boston. He said the trade was done by selling sterling for dollars and then selling dollars for marks. The result was to lower the dollar against the mark, starting a slide.

The dollar’s fall was fairly steady. Most times when the dollar is falling it stages periodic rallies, or bounces, but Wednesday “it was bouncing like a dead cat,” Egan said.

Comments Added Thrust

Currency dealers in Europe said there were spurts of intervention by the central banks of West Germany, Switzerland and Belgium.

The Federal Reserve did not enter the market Wednesday, according to traders.

But comments from government officials in the New York Times, saying that a further rise in the dollar could be troublesome, also helped push the currency lower, traders said.

“It seems that statements are more effective and cheaper than intervention right now,” said Earl Johnson, a dealer with Harris Trust & Savings in Chicago.

The Reagan Administration is comfortable with the current value of the dollar, despite its strong appreciation this year, but would not like to see it rise further, according to government sources, Reuters reported.

The current policy does not represent any change, the sources said, and international agreements on currency movements are still in place.

“There has been no change in policy,” said one government source familiar with Administration thinking.

The Reagan Administration, in concert with other industrialized nations, has long agreed to help keep the dollar steady. But it has risen 22% against the West German mark this year and climbed 12% against the Japanese yen.

Meanwhile, there is speculation in the market that West Germany will push up interest rates in a bid to stop the mark’s fall against the dollar. The Bundesbank council meets today and a news conference has been scheduled, usually a sign that some announcement on rates is expected.

Rises Against Yen

In London, the pound fell to $1.6788 from $1.6795 late Tuesday, influenced by fears that Britain would report a bigger trade deficit today. But later in New York, it rose to $1.6869 from $1.6740 late Tuesday.

In Tokyo, where the business day ends before Europe’s begins, the dollar rose 0.37 yen to a closing 134.30 yen. Later, in London, it was quoted at 134.25 yen. Even later in New York, the dollar fell to 133.83 yen from 134.11 yen.

Other late dollar rates in New York, compared to late Tuesday, included: 1.8820 West German marks, down from 1.9128; 1.5855 Swiss francs, down from 1.6102; 1.2339 Canadian dollars, up from 1.2308; 6.3960 French francs, down from 6.4895, and 1,396.50 Italian lire, down from 1,415.75.

Late dollar rates in Europe, compared to late Tuesday, included: 1.8915 West German marks, down from 1.9060; 1.5950 Swiss francs, down from 1.6055; 6.4250 French francs, down from 6.4635; 2.1370 Dutch guilders, down from 2.1440; 1,403.50 Italian lire, down from 1,407.50, and 1.2321 Canadian dollars, up from 1.2303.

Gold prices rose late in the trading day in reaction to the weakness of the dollar. Gold’s dollar price becomes cheaper for foreign investors when the dollar’s exchange rate falls.

In Hong Kong, gold fell 59 cents an ounce to close at a bid of $434.

Later, gold rose in London to a late bid of $433.90, compared to late Tuesday’s $432.75. In Zurich, Switzerland, gold closed at a $433.50, compared to $433.

On the Commodity Exchange in New York, gold bullion for current delivery rose to $434.90 from $432.20.

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