The Federal Reserve Bank of New York said Wednesday that the government intervened heavily to support the dollar against key foreign currencies in the late fall--particularly after the presidential elections--then reversed course by early this year as market conditions changed.
The intervention to influence the level of the dollar in the three months ended Jan. 31 was the heaviest in a year, according to the latest quarterly foreign exchange report issued by the Federal Reserve Bank of New York, which carries out the operations.
The Federal Reserve and the Treasury Department bought $2.4 billion with Japanese yen and West German marks in November and early December to prop up the dollar’s value.
They sold $1.88 billion to buy marks in January as market sentiment toward the dollar turned more bullish.
In the previous three-month period, from August to October, U.S. intervention totaled $2.3 billion, with the government selling $2.14 billion for marks and buying $200 billion with yen.
Sam Y. Cross, an executive vice president of the New York Fed, said the latest operations were designed to maintain market stability and were coordinated between the central banks of the “Group of Seven” industrial nations. Besides the United States, the G-7 includes Japan, Britain, West Germany, France, Italy and Canada.
“We don’t have targets for the dollar,” Cross said at a news briefing. “We just try to bring about greater stability.”
Only Comments Later
Cross said some of the government’s intervention operations occurred at the same time as with other central banks, but other times the United States acted alone after notifying its trading partners.
Currency traders are often keenly aware of the activities of central banks in the open markets, but the Fed’s policy is to comment only well after the fact. The Fed also does not provide any data on intervention by foreign central banks.
The dollar had started to decline in late September and reached its lows of the November-January period on Nov. 25, when it fell to 120.65 yen and 1.7085 marks, or about 11% below the highs of the year reached in early fall. Lately it has been trading in the markets at around 1.80 marks and 128 yen.
The dollar’s weakness had come as the market began to doubt that the large improvement in the U.S. trade deficit experienced during early 1988 would continue. Traders also expressed growing impatience with the lack of progress being made in reducing the nation’s huge budget deficit.
Those concerns came to a head after the Nov. 4 presidential elections, with currency traders questioning whether the newly elected Bush Administration could reduce the twin deficits and keep its promise not to raise taxes.