Dollar Closes at Best Level in 3 Months in Light Holiday Trading

The dollar closed sharply higher in light holiday trading today, hitting the best level in three months on speculation that Western trading partners are tolerating a stronger U.S. currency.

It jumped to 1.8550 West German marks at the close from Friday’s 1.8445, which had also been a three-month high.

It also advanced against Japan’s currency to 128.00 yen from 127.40.

Trading was slow, however, with banks closed for the Martin Luther King Jr. federal holiday. The shortened trading day ended at 1 p.m. EST instead of the normal 4:30 p.m.

With the Federal Reserve and commercial banks closed, dealers neither expected nor reported any central bank intervention to halt the dollar’s rise, as there had been on several days last week. But speculators continued to buy.

“There is natural demand for the dollar,” said Yani Budiman of Chemical Bank.

The dollar has been buoyed in recent weeks by steady U.S. interest rates and stronger economic reports, as well as the perception that the U.S. trading partners are allowing it to rise. The Fed may be seeking a stronger currency to reduce the threat of inflation from expensive imports, dealers say.

Looking ahead, a sharply wider November U.S. trade gap Wednesday could dim the dollar’s luster, dealers said. Others felt that for technical reasons alone the currency could be due for a decline.

“We could reach 1.88 marks by Wednesday,” a Frankfurt dealer said. “But it’s gone up too fast. . . . Next week it might correct four or five pfennigs,” she added.

Dealers said the dollar extended last week’s gains on the back of West German Finance Minister Gerhard Stoltenberg’s remark Friday that the dollar’s present level is acceptable. Expectations that U.S. interest rates will remain firm also helped.

Stoltenberg said current values--up more than 4.5% against the mark since the start of the year--were acceptable to the Group of Seven industrial powers.

Speculative money has flowed to dollars because high U.S. interest rates offer a good return on many dollar assets.