CURRENCY : Dollar Falls on Central Bank Intervention

The dollar ended lower in wild foreign exchange trading in New York on Wednesday after at least nine central banks launched a major round of intervention, flooding markets with the U.S. currency to try to stop dangerous swings in world exchange rates.

In a third straight day of such coordinated dollar selling, central banks of the United States, West Germany, Britain, Italy, Belgium, Switzerland, Canada, Austria and the Netherlands struck out on a mission to stall the dollar’s recent rally, dealers said.

“It was very hectic. The market just sort of twisted and turned,” said Jeff Mondschein, vice president and manager of foreign exchange trading at Continental Bank in Chicago.

High U.S. interest rates have made the dollar attractive to global investors, while the West German mark has been under heavy selling pressure because of low German interest rates.

Central banks have been fighting the trend because of fears that currencies are becoming mis-aligned and could cause economic damage. Among other things, a strong dollar would hurt progress in reducing the huge U.S. trade deficit.

The currency has yet to retreat sharply, even though Wednesday’s action was the banks’ biggest show of force since the dollar’s surge at the New Year.

“The market still has an interest in buying dollars,” said Robert Hatcher of Barclays Bank in London. “I don’t think this concerted intervention changed anything.”

“Obviously coordinated intervention had a larger effect than the Bundesbank would have had on its own, but the dollar’s firm undertone remains,” said a Frankfurt dealer.

The dollar reached a three-month high of 1.84 marks in European trading before succumbing to central bank intervention and finished the day in New York between 1.82 marks and 1.83 marks.

“The type of trading that’s being done is indicative of a market in which 95% of the participants don’t have a firm view, and they’re very willing to turn,” said Jerry Egan, a senior trader at Bank of Boston.

While investors have chosen to focus on interest rates lately, they could start knocking the dollar down and buying marks if they decided to focus on the imbalance in trade.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 1.25 Japanese yen to a closing 126.95 yen. Later, in London, it was quoted at 126.15 yen. In New York, the dollar fell to 125.78 yen from 126.33 Tuesday.

The dollar fell against the British pound as well. Sterling fetched $1.7815, compared to $1.7643 Tuesday. In New York, sterling rose to $1.7866 from $1.7649.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.8255 West German marks, down from 1.8353; 1.5529 Swiss francs, down from 1.5650; 1.2013 Canadian dollars, down from 1.2029; 6.2240 French francs, down from 6.2515, and 1,341 Italian lire, down from 1,344.

Other late dollar rates in Europe, compared to late Tuesday, included: 1.8280 West German marks, down from 1.8355; 1.5550 Swiss francs, down from 1.5645; 6.2270 French francs, down from 6.2555; 2.0595 Dutch guilders, up from 2.0589; 1,337.50 Italian lire, down from 1,338.50, and 1.2003 Canadian dollars, down from 1.2012.

Gold prices fell slightly. In Hong Kong, gold fell $2.70 an ounce to close at a bid price of $404.48. In London, the metal slipped $1.25 to a late bid of $403.50; in Zurich, Switzerland, gold closed at $403.30, up from $405.10.

On the Commodity Exchange in New York, gold bullion for current delivery fell to $403.40 from $403.80 an ounce late Tuesday. Later, Republic National Bank of New York said gold bullion was bid at $403.65 as of 4 p.m. EST, down from $403.80 late Tuesday.

Silver bullion prices declined in London to a late bid price of $5.94 an ounce, compared to Tuesday’s $5.98. On New York’s Comex, silver bullion for current delivery rose to $5.921 from $5.916 late Tuesday.

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