CURRENCY : Higher European Interest Rates Send Dollar Lower
The dollar fell Thursday in heavy trading sparked by a round of interest rate increases in Europe and a tough statement from the head of West Germany’s central bank.
Gold prices were mixed. Republic National Bank of New York said gold was bid at $432.60 an ounce as of 4 p.m. EDT, down from $434.60 an ounce late Wednesday.
West Germany’s Bundesbank raised its discount rate by half a percentage point to 3.5% to defend the value of the mark and guard against the inflation that comes from having a weak currency.
France, Switzerland, the Netherlands and Austria also raised official rates, and Britain signaled an increase in commercial rates.
In a strongly worded statement, Bundesbank President Karl Otto Poehl said the central bank “will continue to do everything to stem the decline of the deutsche mark against the dollar.”
Poehl said exchange rates had gotten out of line with those agreed upon by the Group of Seven major industrialized nations and added that “it’s not in the mutual interest if the current trend continues.”
The West German central bank continued to sell dollars in the open market.
U.S. Rates May Rise
“The Germans have shown us pretty clearly that they really haven’t been happy with the mark at the level it’s been,” said Derek Walker, an economist at Midland Bank PLC in London.
Higher European rates make it more attractive to hold securities denominated in the European currencies.
But the dollar found some support from news that the second-quarter U.S. gross national product was revised upward to 3.3% growth from 3.1%.
Traders said that the strong growth indicates that U.S. interest rates may rise to match Thursday’s increases in European rates.
The dollar fell most sharply against the West German mark, sinking to 1.8657 in late New York trading after briefly touching as low as 1.8575. It closed at 1.8820 Wednesday and 1.9128 Tuesday, meaning its two-day decline was about 2.5%.
Silver Declines
In London, the pound rose to $1.6995 from Wednesday’s late $1.6788. Later in New York, the pound rose to $1.6965 from $1.6869 late Wednesday.
In Tokyo, where the business day ends before Europe’s begins, the dollar fell 0.54 yen to a closing 133.76 yen. Later, in London, it was quoted at 133.30 yen. In New York, the dollar fell to 133.44 yen from 133.83 yen late Wednesday.
Other late dollar rates in New York, compared to late Wednesday’s rates, included: 1.5705 Swiss francs, down from 1.5855; 1.2360 Canadian dollars, up from 1.2339; 6.3413 French francs, down from 6.3960, and 1,385.00 Italian lire, down from 1,396.50.
Gold fell in London to a late bid price of $433.50 an ounce, compared to Wednesday’s late bid of $433.90. In Zurich, Switzerland, gold closed at a bid of $433.50 an ounce, unchanged from late Wednesday.
On the Commodity Exchange in New York, gold bullion for current delivery fell to $432.80 an ounce from $434.90 late Wednesday.
Silver bullion prices fell on the London market.
Silver was trading at a late bid price of $6.77 an ounce, compared to Wednesday’s $6.81.
On New York’s Comex, silver bullion for current delivery fell to $6.708 an ounce from $6.782 an ounce late Wednesday.
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