CURRENCY : Dollar Retreats on Rumors of W. German Interest Hike

The dollar retreated Wednesday, hurt by what money dealers called rumors of a hike in West German interest rates and a negative market reaction to the monthly U.S. trade report.

Gold prices rose slightly in U.S. trading after easing marginally abroad. Republic National Bank quoted bullion at $421 an ounce as of 4 p.m. EST, up from $419.50 at the same time Tuesday.

Foreign exchange strategists said speculation that the West German central bank would tighten domestic credit conditions today raised demand for the West German mark and consequently increased the supply of dollars in the market, pushing down the U.S. currency’s value.

Pressure on the dollar intensified after the Commerce Department said the U.S. merchandise trade deficit narrowed to $10.35 billion in October from $10.67 billion the month before. Although the shortfall was the smallest in three months, the market had anticipated an imbalance of about $10.5 billion.

“The figures came out in line with expectations, and since there’s overriding bearish sentiment to the dollar, people just resumed selling it,” said Stuart Yannalfo, a trader at the New York commodities futures firm Refco Inc. “The only thing that could have prevented it would have been a really good number, like $7 (billion) or $8 billion.”

In Tokyo, where markets closed before the trade report was released, the dollar rose 0.29 Japanese yen to 123.35 yen. Later in London, the dollar dropped to 122.60 yen. By the time trading ended in New York, the dollar fetched 122.67 yen, down from 123.29 yen late Tuesday.

Silver bullion for current delivery rose 0.9 cent an ounce to $6.177 on New York’s Comex. In London, silver fell 1 cent to $6.16 an ounce.

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