The dollar weakened Monday in response to plunging oil prices, which were seen as easing inflation pressure in the United States and lessening demand for currency to pay for dollar-quoted oil contracts.
Gold prices rose in what dealers described as largely a technical and temporary reaction to the metal’s fall last week, which also was a response to declining oil prices. Republic National Bank’s late quote was $396.95, up from $394 late Friday.
Currency brokers said oil futures prices’ drop toward the $13-a-barrel level signaled lower inflation in the United States and therefore lower U.S. interest rates, making investments in dollars less attractive.
Moreover, because most oil contracts are priced in the U.S. currency, cheaper oil means buyers will not need as many dollars. Therefore, said Zlatko Glamuzina, chief currency dealer at Banco di Sicilia’s New York branch, “we have less demand for dollars to pay for the oil.”
Other analysts said the dollar was weakened by European press reports quoting West German central bank President Karl Otto Poehl as saying that further erosion of the West German mark’s value was undesirable. The reported remarks implied that West Germany would sell dollars to thwart a steep rise in the currency.
In Tokyo, the dollar fell 0.40 Japanese yen to 133.90 yen. Later in London, it was quoted at 133.80 yen. By the time trading ended in New York, the dollar fetched 133.67 yen, down from 133.75 yen late Friday.
The British pound strengthened against the dollar in London to $1.6990, against $1.6905 late Friday. Later in New York, the pound rose to $1.7019 from $1.6935 late Friday.
Other New York late dollar rates, compared to levels late Friday, included: 1.8617 West German marks, down from 1.8690; 1.5820 Swiss francs, down from 1.5830; 1.2097 Canadian dollars, down from 1.2167; 6.3420 French francs, down from 6.3595, and 1,387.00 Italian lire, down from 1,393.50.
Late dollar rates in Europe, compared to late rates Friday, included: 1.8608 West German marks, down from 1.8725; 1.5785 Swiss francs, down from 1.5830; 6.3350 French francs, down from 6.3700; 2.1010 Dutch guilders, down from 2.1185; 1,397.95 Italian lire, up from 1,396.50, and 1.2104 Canadian dollars, down from 1.2171.
Gold prices rebounded in Europe and the United States because of short-covering, in which dealers buy gold contracts to repay borrowed contracts they had sold earlier. Nevertheless, many dealers said overall pressure on gold likely would continue to erode its value.
On the Commodity Exchange in New York, gold for current delivery rose $3.10 an ounce to $397.50.
In London, gold rose to $397.75 from $394.45 late Friday, and in Zurich, it rose to $397 from $396.