Central Banks Sell Dollar to Stem Surge : U.S. Currency Fails to Weaken as Expected When Inflation Fell More Than Predicted

Monetary authorities around the world sold dollars today as part of a concerted effort to stem a sharp surge in the U.S. currency, senior banking sources said.

But the dollar still managed to hold on to gains against major foreign currencies.

Central banks decided to intervene after the dollar failed to weaken, as expected, in reaction to what should have been negative figures for the dollar, said a market source, who requested anonymity.

The dollar fell briefly after the release in Washington of unexpected news on the U.S. producer price index for July but almost immediately rebounded on renewed buying interest.

Renewed Auto Buying

The news that the inflation index fell 0.4% would normally have been bearish for the dollar because it implies that an easing of interest rates may be at hand. The market had expected producer prices to be up only 0.1%.

A separate report on U.S. retail sales helped alleviate some recession fears. Retail sales, paced by renewed spending on autos, rebounded 0.9% in July after posting their first back-to-back monthly declines since early 1986.

A string of European central banks including West Germany’s Bundesbank, the Bank of England and banks of Belgium, Italy and Switzerland were among those selling dollars. The U.S. Federal Reserve also sold dollars, currency dealers reported.

Several central banks, such as the Bundesbank, confirmed their actions that were first reported by currency dealers. The Fed’s policy is not to comment on market reports of intervention.

In London, the dollar gained against the British pound. It cost $1.5940 to buy one pound, compared with $1.5988 at mid-morning and $1.6280 late Thursday.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 1.05 yen to a closing 140.10 yen. Later, in London, it was quoted at a higher rate of 141.50 yen versus 141.05 yen before the intervention.

Selected dollar rates at mid-afternoon, with morning rates in parentheses and compared with late Thursday’s rate, included: 1.9285 (1.9230) West German marks, up from 1.8905; 1.6615 (1.6612) Swiss francs, up from 1.6325; 6.5025 (6.4965) French francs, up from 6.3955; 2.1860 (2.1608) Dutch guilders, up from 2.1275; 1,388.00 (1,382.00) Italian lire, up from 1,356.75; and, 1.1720 (1.1725) Canadian dollars, down from 1.1722.