Dollar Goes Into Tailspin Despite Fed Intervention

The dollar fell sharply Wednesday, as buying by the Federal Reserve and the Bank of Japan failed to break the market from its bearish view of the U.S. currency.

Gold prices posted sharp gains as a buying spree in platinum spread to other precious metals.

The dollar’s fall brought it to a six-month low against the Japanese yen and five-month lows against other major currencies.

Traders said dollar purchases by the Bank of Japan and the Federal Reserve were only partially successful because market participants felt the central banks were trying to slow the U.S. currency’s fall, not arrest it.

“The markets are interpreting this as a smoothing operation,” said Randy Kaplan, a dealer for National Australia Bank Ltd. in New York.

In Tokyo, the dollar fell 0.62 Japanese yen to 124.68 yen. Later in London, the dollar edged back up to 124.82 yen. At the end of the trading day in New York, the dollar fell to 124.40 yen from 125.07 yen. The dollar has fallen sharply from its level of nearly 140 yen in late August.

The dollar-buying in New York by the Federal Reserve came shortly after the start of trading here, following the Bank of Japan’s move in the Tokyo market.

Dealers are typically wary of selling the dollar while central banks are actively supporting it, but the government intervention has had only limited success in stopping its recent fall.

The market expected the Reagan Administration would take steps to keep the dollar and the financial markets steady before the presidential election next Tuesday, dealers said.

“The market is making moves which we previously thought would take place after the election,” said Saburo Ueda, senior vice president of Sanwa Bank’s New York branch.

“People are still very negative here,” said economist Tim Fox of Barclays Bank Global Treasury Services in London.

The pattern of the last few days has been for heavy dollar selling in Asia, partly countered in the European and U.S. trading days by news of dollar-buying intervention by the Bank of Japan and the Fed.

Holiday a Factor

Wednesday’s trading was complicated by today being a national holiday in Japan.

“Institutional investors hurried to sell ahead of the holiday here, on expectations that downward pressure on the dollar could increase because the Bank of Japan cannot support it tomorrow,” said Hirozumi Tanaka, foreign exchange department chief at Dai-ichi Kangyo Bank in Tokyo.

In London, the dollar fell against the British pound. It cost $1.7740 to buy one pound, more expensive than $1.7668 late Tuesday. In New York, the pound rose to $1.7805 from $1.7698.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.7750 West German marks, down from 1.7840; 1.4898 Swiss francs, down from 1.4982; 1.2261 Canadian dollars, down from 1.2274; 6.0470 French francs, down from 6.0895, and 1,319.88 Italian lire, down from 1,325.50.

Gold Prices Soar

Other late dollar rates in Europe, compared to Tuesday’s late rates, included: 1.7840 West German marks, down from 1.7865; 1.4975 Swiss francs, down from 1.5025; 6.0885 French francs, down from 6.0965; 2.0193 Dutch guilders, up from 2.0155; 1,322.00 Italian lire, down from 1,331.50, and 1.2275 Canadian dollars, down from 1.2278.

Gold prices shot upward. Republic National Bank of New York said gold bullion was bid at $420.90 an ounce as of 4 p.m. EST, up sharply from $411.30 late Tuesday.

Gold and silver prices were led upward by a continuing speculative surge in the price of platinum as well as the dollar’s weakness, said Brian Donohue, a gold trader in New York for Midland Montagu Metals.

“Gold was overdue for a breakout. They’ve been talking the metals down so long that a lot of people were caught short,” Donohue said.

In Hong Kong, gold closed at $413.90, up from $413.89 at Tuesday’s close.