Financial Markets : CURRENCY : Soviet Uncertainty Gives Dollar a Boost

A wave of uncertainty over Soviet President Mikhail S. Gorbachev’s political future pushed the dollar mostly higher in domestic dealings, overshadowing two bearish reports on the U.S. economy.

Gold prices generally rose. Republic National Bank of New York quoted a late bid of $414.50, up 90 cents an ounce. On New York’s Commodity Exchange, however, gold bullion for current delivery slipped 80 cents to $413.20.

The dollar took a hit overseas and traded sharply lower in domestic dealings following negative reports on U.S. inflation and retail sales.

But late in the session, traders said talk that Gorbachev may not survive the intense political pressure surrounding Lithuanian demands for secession pushed the dollar higher.

During a trip to Lithuania, Gorbachev promised a referendum on a law that would require republics to hold their own votes on breaking away, but currency traders said there were rumors he was not supported by Moscow.

“The speculation is that Gorbachev is not dealing from a large power base anymore,” said Kevin Lawrie, a vice president at Bank of Boston’s New York office.

“And when in doubt, buy the buck,” he said, referring to the dollar as the safe-haven currency during times of political instability.

Despite the uncertainty, Marc Chandler, an analyst with Chicago-based Money Market Services International, stressed that “the economic fundamentals continue to work against the dollar.”

The inflation and retail sales reports, which point jointly to higher inflation and an economic slowdown, initially rocked the dollar.

The financial markets interpreted the reports as a sign the Federal Reserve would not lower interest rates in the near future.

In Tokyo, the dollar closed at 145.35 Japanese yen, up from 145.27. Later in London, the dollar closed higher at 145.40 yen. In New York, the dollar finished at 145.74 yen, up from 145.45 yen on Thursday.

In London, one British pound cost $1.6705, more expensive for buyers than Thursday’s late $1.6575. In New York, it cost $1.6610 to buy one pound, more expensive than $1.6598 on Thursday.

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