Dollar Skyrockets Despite Fed, Other Intervention

Traders carried the dollar to the highest levels in nearly three months on Thursday, although selling by central banks knocked the currency off its peak of the day.

Central banks in West Germany, France, Spain, Italy and Switzerland confirmed that they sold dollars to restrain the currency, and traders said the Bank of Canada and the U.S. Federal Reserve joined in the concerted action.

The bankers are committed to keeping exchange rates stable to avoid damage to world trade.

At its peak in late European trading the dollar went above 1.99 West German marks, just shy of the psychologically important level of 2 marks to the dollar. It ended the New York trading day below 1.98 marks.

Propelling the dollar upward have been attractive U.S. interest rates and confidence in the health of the U.S. economy and financial markets. The dollar is near its levels of mid-June, when a rally carried it to two-year highs.

The volume of trading was not especially heavy, reflecting traders’ uncertainty about the strength of the current rally, said Keith Raphael, an assistant vice president at Bank Brussels Lambert in New York.

In the absence of heavy buying demand, central banks were able to get some results from a relatively modest amount of dollar selling. Still, many traders expected the market to keep testing the central banks’ resolve.

“There’s fundamentally no reason for the dollar to come off,” said Bill Doyle, a corporate foreign exchange trader at the Hong Kong & Shanghai Banking Corp. branch in New York.

In Tokyo, the dollar closed at 146.87 Japanese yen, up 0.22 yen from Wednesday’s close. Later, in London, the dollar was quoted at 147.10 yen. In New York, the dollar traded at 146.65 yen, below its levels of earlier in the day but above its Wednesday close.

Gold Prices Fall

In London, the dollar gained against the British pound. It cost $1.5460 to buy one pound, cheaper than $1.5552 late Wednesday. In New York, the pound traded at $1.5520, weaker against the dollar than $1.5525 on Wednesday.

Other late dollar rates in New York, compared to late Wednesday’s rates, included: 1.9798 West German marks, up from 1.9753; 1.7075 Swiss francs, up from 1.7048; 1.1859 Canadian dollars, up from 1.1802; 6.6685 French francs, up from 6.6560, and 1,419.3 Italian lire, up from 1,417.9.

Other late dollar rates in Europe, compared to late Wednesday’s rates, included: 1.9845 West German marks, up from 1.9735; 1.7120 Swiss francs, up from 1.7045; 6.6880 French francs, up from 6.6480; 2.2423 Dutch guilders, up from 2.2280; 1,426.20 Italian lire, up from 1,417.50, and 1.1842 Canadian dollars, up from 1.1798.