CURRENCY : Downing of Libyan Jets Boosts Dollar in Europe
News that U.S. Navy jets shot down two Libyan fighters Wednesday spurred panic buying of dollars, sending the U.S. currency up nearly two pfennigs against the West German mark.
The dollar was also aided by expectations of strong U.S. employment data.
Gold prices declined. Republic National Bank of New York quoted a late bid of $408.50 for an ounce of gold, down from $411 late Tuesday. On the Commodity Exchange in New York, an ounce of gold fell to $408.70 from $410.80 on Tuesday.
The dollar had begun rising in foreign markets prior to news of the skirmish, but traders said bidding for the U.S. currency intensified afterward. The U.S. currency is regarded as a safe haven in times of international tension.
“The dollar did snap back quite a bit,” said Robert Hatcher, vice president of corporate foreign exchange in the New York office of Britain’s Barclays Bank PLC.
He described the dollar buying as a “flight to quality” prompted by the incident in the Mediterranean.
In addition, many traders are said to be expecting Friday’s government report on unemployment for December to show strong job growth. Such a showing could prompt the Federal Reserve to raise interest rates to rein in growth, a move which would boost the dollar, analysts said.
Before European markets opened, the dollar fell in Tokyo against the Japanese yen on the first day of trading there after the New Year’s holiday. Dealers in Tokyo said there was massive selling of dollars after excessive buying at the end of 1988.
The dollar closed in Tokyo at 124.05 Japanese yen, down from Friday’s 125.90 yen before the holiday. In London late Wednesday the dollar traded higher at 124.95 yen. By the end of trading in New York, the dollar was quoted at 124.97 yen, up from 123.82 yen late Tuesday.
The dollar’s fall in Tokyo didn’t seem to affect dealing in Europe, where the U.S. currency rose after the opening on the heels of a large number of commercial orders and expectations of higher interest rates.
The dollar also rose against the British pound, which lost its 2-cent gain of Tuesday, dropping back to $1.8065 from $1.8270. In late New York trading a pound was worth $1.8090, cheaper than $1.8225 late Tuesday.
Other late dollar rates in New York, compared to Tuesday’s late rates, included: 1.7875 West German marks, up from 1.7670; 1.5282 Swiss francs, up from 1.4907; 6.0910 French francs, up from 6.0340; 1,314.50 Italian lire, up from 1,300.50, and 1.1925 Canadian dollars, up from 1.1916.
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