FINANCIAL MARKETS : Speculators Give Another Boost to the Dollar’s Rally

Speculators gave the dollar’s early summer rally a fresh push Wednesday in advance of a government report Thursday on the U.S. trade deficit.

The rally gained strength late in the day after wavering in Asian and European trading. The dollar soared past 2.03 West German marks in spite of attempts by the Federal Reserve to keep it below that level through dollar sales.

“To be short dollars these days is like committing suicide,” said Gary Lutnick, a currency trader at Banco di Sicilia in New York.

Since the end of April the dollar has risen 13% against the Japanese yen, 8% against the West German mark and 11% against the British pound.

The rally has broken a long period of relative stability and brought the dollar back to levels of 1987 and late 1986.

The strong dollar increases the spending power of Americans’ money but could hurt the economy in the long run by making American-made goods more expensive in world markets, worsening the U.S. trade deficit. The dollar’s ascent in the early 1980s got partial blame for throwing American factory workers out of their jobs.

Fueling the dollar’s rise Wednesday was speculation that the Commerce Department would report an April merchandise trade deficit of $6 billion to $8 billion, down from $8.9 billion in March, said John Lyman, a senior currency dealer for Bank of Tokyo in New York.

It would take more than a year for the full effect of the dollar’s recent rise to show up in deteriorating trade figures.

Speculators accumulated dollars for their own accounts Wednesday, hoping that they would rise in value because of a favorable trade report, Lyman said.

However, the bloated dollar holdings could send the market lower if the trade deficit turned out to be much larger than expected and speculators sold the currency.

In London, the pound fell to $1.5143 from $1.5162 late Tuesday. Later in New York, sterling fell to $1.5120 from $1.5270 on Tuesday.

In Tokyo, where trading ends before Europe’s business day begins, the dollar finished down 0.65 yen at 148.05 yen. Later, in London, the dollar was quoted at 149.10 yen. In New York, the dollar rose to 149.45 yen from late Tuesday’s 147.75 yen.

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