THE ECONOMY : Dollar Slips on Fears of Action by W. Germany
The dollar slipped below 2 West German marks in late trading Tuesday in a choppy session dominated by speculation about an interest rate increase by the West German central bank.
The dollar finished the day above the levels it reached last Friday in New York but below where it traded Monday in Europe. The U.S. and British currency markets were closed for holidays on Monday.
Last week, the dollar rose above 2 marks for the first time in 2 1/2 years and went over 140 Japanese yen for the first time in 1 1/2 years.
Trading on Tuesday was dominated by speculators known as “jobbers” who try to cash in on short-term price trends while ignoring fundamental factors, said Carmine Rotondo, chief corporate dealer in the New York office of Security Pacific National Bank.
With speculation causing sharp ups and downs, “the market looks like an EKG,” or electrocardiogram, Rotondo said.
In an early show of strength, the dollar shrugged off the Bank of Japan’s decision to raise its official discount rate on Tuesday to 3.25% from 2.5%.
The daily highs were reached in Asian trading, when the dollar at one point went over 2.02 West German marks and touched 144 Japanese yen.
Hurt by Speculation
Dollar sales by European central banks did little to knock down the dollar, which reached a two-year high against the British pound in European trading.
But later in New York, the dollar was hurt by speculation that West Germany’s Bundesbank would decide at its weekly council meeting on Thursday to raise base lending rates, which would make the mark more attractive.
Also weakening the dollar late in the session was intervention by the Federal Reserve, which sold dollars when the currency already was sliding.
Higher interest rates in Japan and West Germany would tend to weaken the dollar by making yields in their currencies more attractive in comparison to yields on U.S. investments such as Treasury bills.
The British pound appeared to bear the brunt of the interest rate hikes. Many traders moved money from sterling into marks, said Bruce Brittain, managing director for foreign exchange trading at Salomon Bros.
Sterling fell in London to $1.5570 from $1.5710 late Monday. Later in New York, sterling traded at $1.5710, up from its London level but down from $1.5905 late Friday in New York.
Dollar Up in Tokyo
In Tokyo, the dollar rose 0.22 Japanese yen to a closing 143.10 yen. Later in London, the dollar rose to 143.25 yen. In New York, the dollar traded at 142.75 yen, down from earlier in the trading day but up from 141.10 yen on Friday.
Other late dollar rates in New York, compared to late rates on Friday, included: 1.9960 West German marks, up from 1.9835; 1.7345 Swiss francs, up from 1.7310; 1.2075 Canadian dollars, up from 1.2015; 6.7635 French francs, up from 6.7170, and 1,440 Italian lire, up from 1,433.75.
Other late dollar rates in Europe, compared to late rates on Monday, included: 2.0100 West German marks, down from 2.0101; 1.7545 Swiss francs, down from 1.7550; 6.8085 French francs, up from 6.8025; 2.2630 Dutch guilders, up from 2.2625; 1,452.50 Italian lire, down from 1,454.00, and 1.2055 Canadian dollars, up from 1.2047.
Gold prices were mixed.
In Hong Kong, gold fell 43 cents to $362.73 an ounce.
Gold bullion fell in London to a late bid of $362.25, down from $363.75 late Friday. London markets were closed on Monday. In Zurich, Switzerland, gold fell to $362.10 from $363.35 late Monday.
On the Commodity Exchange in New York, gold bullion for current delivery fell to $365.70 from $366 on Friday.
Later, Republic National of New York said gold was bid at $364.45 as of 4 p.m. EDT, up from $363.75 late Friday.
Silver bullion fell in London to a late bid of $5.20 an ounce, down from $5.27 late Friday. On New York’s Comex, silver bullion for current delivery fell to $5.23 from $5.252.
