Dollar Trampled in Dealer Rush to Unload Currency
Currency dealers pounded down the dollar Friday in hectic selling incited by the worst stock plunge since the crash two years ago.
Harried traders reported an atmosphere of alarm suddenly engulfed the currency markets late in the afternoon as stock prices skidded on the New York Stock Exchange.
“It just seemed everybody wanted to sell dollars. It was just a mass panic,” said Thomas Palladino, an assistant vice president at the New York office of the Amsterdam Rotterdam Bank.
The intensity of the stock market selloff was especially unnerving because it occurred almost two years to the day after the worst Wall Street crash ever. “There was an eerie sense of deja vu ,” said Kevin Laurie, manager of Treasury operations at Bank of Boston in New York. “The dollar reacted to it pretty violently.”
The widely watched Dow Jones index of 30 industrial stocks plunged 190.58 points to 2,569.26, the largest drop since the crash on Oct. 19, 1987. Other stock indexes also fell sharply.
Dollar sales bred additional selling as the dollar sank below thresholds that professional traders had designated as “stop loss” levels. In stop-loss maneuvers, traders sell to guard against possibly losing more money in case a market slide continues.
The drop in the dollar was exaggerated by the diminished trading volume that is typical for Friday afternoons.
On Fridays, banks stop dealing directly with one another earlier than on other days of the week, which reduces liquidity in the market. Price movements have a greater impact when liquidity is low.
Dealers said they expected the dollar to lose additional ground against other major currencies in Asian trading over the weekend.
Initially on Friday, two economic reports had encouraged some dollar buying. A 0.9% surge in the U.S. producer price index during September and a rise of 0.5% in retail sales indicated that interest rates would not decline any time soon.
The early enthusiasm for dollars was dampened somewhat, however, by unconfirmed reports that central banks had sold dollars to keep the currency in check.
By the time trading was done for the day in New York, the dollar stood at 142.05 Japanese yen, down from 144.15 yen on Thursday. The loss of about 2 yen was unusually large.
Earlier, in Tokyo, the dollar fell to 144.00 yen from 144.60 yen at Thursday’s close and in London, it edged up to 144.10 yen.
The British pound benefited from the dollar’s decline. A pound fetched $1.5820 late in New York, compared to $1.5527 on Thursday.
