Rally Foiled; Dollar Continues to Take It on the Chin

Central banks sold dollars for a third straight day Wednesday, pushing the currency lower after an agreement last weekend that it had risen too much in recent months.

The losses left the dollar 4% lower against the West German mark and Japanese yen than it was late last week, back to its levels of late July and early August.

The central banks squashed a rally attempt at mid-morning in New York. Still, the slight rebound in the dollar signaled to some traders that the official bankers had won the battle against the $300-billion-a-day currency market, but not yet the war.

“Do they want it to get off the mat or do they want to kick it while it’s down? Assuming they’re playing a serious game, I think you’d go for the kidneys now rather than later,” said Charles Taylor, an international economist at Prudential-Bache Securities in Washington.

Frequent Sales

A strong dollar tends to swell the U.S. trade deficit by making imports cheap and pushing up the price of American goods in foreign markets. At a meeting in Washington, finance leaders of the Group of Seven industrial nations agreed Saturday that the dollar’s rise was “inconsistent with longer run economic fundamentals.”

Traders said the frequency of sales rather than their size was pushing down the dollar.

The dollar fell against all major currencies except the Canadian dollar, which often moves in tandem with the U.S. dollar, and the British pound, which was weighed down by a worse-than-expected trade deficit report.

In London, the British pound fell to $1.6155 from $1.6215 late Tuesday. In New York, the pound fell to $1.6167 from $1.6190.

In Tokyo, the dollar fell 1.45 Japanese yen to a closing 141.35 yen. Later, in London, it dropped further to 139.45 yen. It was quoted at 140.32 yen in late New York trading, down from 142.35 late Tuesday.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.8805 West German marks, down from 1.8918; 1.6305 Swiss francs, down from 1.6415; 1.1771 Canadian dollars, up from 1.1756; 6.3655 French francs, down from 6.4110, and 1,361.7 Italian lire, down from 1,366.9.

Other late dollar rates in Europe, compared to late Tuesday’s rates, included: 1.8830 West German marks, down from 1.8885; 1.6305 Swiss francs, down from 1.6390; 6.3485 French francs, down from 6.3990; 2.1215 Dutch guilders, down from 2.1480; 1,359.50 Italian lire, down from 1,377.00, and 1.1770 Canadian dollars, up from 1.1750.

Gold bullion edged higher in active European trading. In London, the metal rose to a late bid of $368 an ounce from $367.75 bid late Tuesday.

Silver Falls

In Zurich, Switzerland, gold also rose to a late bid of $368 from $367.75 bid late Tuesday.

Earlier, in Hong Kong, gold rose $2.09 to close at a bid of $369.92.

On the Commodity Exchange in New York, gold bullion for current delivery fell to $367.60 from $368.50. Later, Republic National Bank of New York said gold was bid at $366.20, down from $367.30 late Tuesday.

Silver bullion fell in London to a late bid of $5.28 an ounce, down from $5.31 bid late Tuesday. On New York’s Comex, silver bullion for current delivery fell to $5.245 from $5.263 on Tuesday.