CURRENCY : Dollar Returns to Low Levels of Summer

The dollar fell to its lowest point since the early summer on Wednesday, continuing a swift descent that was blamed on nervousness about the report due today on the U.S. trade deficit.

Meanwhile, gold prices were mostly higher.

A big deficit would indicate that the dollar needs to fall further to erase the trade deficit by making U.S. goods cheaper in world markets.

Since its latest peak on Sept. 1, the dollar has fallen 6% against the Japanese yen, 4% against the British pound and more than 3% against the West German mark. The steepest slide has occurred this week.

“This is the first time in a long time that I’ve sensed the currency markets to be as nervous as they have been in the last 48 hours,” said Marc Cohen, a vice president for Republic National Bank of New York.

Some traders said the dollar might fall if the Commerce Department reported an August trade deficit greater than $11 billion or so, compared to $9.5 billion in July.

However, the market’s reaction to trade numbers is unpredictable. If sentiment has shifted decisively against the dollar, even a small deficit could fail to boost the currency.

Sales of Sterling

The dollar began to ease in Tokyo, where trading ends before Europe’s business day begins, following Japanese Central Bank President Satoshi Sumita’s indications that he isn’t too concerned about the Japanese yen’s recent strength.

Sumita’s statements, some Frankfurt dealers said, triggered sales of billions of dollars by institutions in Japan.

In Tokyo, the dollar fell to a closing 129.65 yen from 131.15 yen late Tuesday. It was the first time the dollar closed below the 130-yen level since June 24. Later, in London, it was quoted at 129.20 yen. In New York, the dollar plunged to 129.03 yen from 131.07 late Tuesday, reaching its lowest point since June 23, when it closed at 128.55.

Market participants said the Bank of England, repeating Tuesday’s move, came into the market Wednesday, selling modest amounts of sterling when the currency traded at about $1.7270. But the intervention failed to stem the dollar’s fall and the pound’s rise.

At the end of the day, it cost $1.7305 to buy one pound, more expensive than $1.7175 late Tuesday. In New York, the pound rose to $1.7364 from $1.7172.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.8345 West German marks, down from 1.8541; 1.5491 Swiss francs, down from 1.5615; 1.2112 Canadian dollars, up from 1.2111; 6.2545 French francs, down from 6.3165, and 1,366.63 Italian lire, down from 1,380.75.

Gold prices were mostly higher. The exception was Hong Kong, where gold prices fell $3.06 an ounce to close at a bid $408.53, after rising Tuesday.

Gold rose in London to a late bid price of $409.25 an ounce, compared to late Tuesday’s $406.25 an ounce.

In New York, Republic National Bank of New York said gold was bid at $408.50 an ounce as of 4 p.m. EDT, up from $404 late Tuesday.