CURRENCY : Weakening Dollar Drops to New Lows

The dollar fell Monday to new lows against the German mark and Swiss franc on concerns about interest rates and the level of interest in this week’s record auction of $34.25 billion in new U.S. Treasury securities.

The dollar also dropped against other major currencies.

“It is a continuation of the view that interest rates are headed lower and that the economy is weak,” said David Wilson of Gironzentrale New York.

The dollar was low as 1.4825 marks but closed above that level at 1.4850 marks, down from 1.4945 late Friday. The previous low, 1.4910 marks, was set on Oct. 19.

The dollar also reached a new closing low against the Swiss franc, ending at 1.2505 francs in New York, down from late Friday’s 1.2605. The previous low was 1.2558 francs on Aug. 23.

Against the Japanese currency, the dollar bought 126.55 yen late in New York, down from 127.78 Friday.

The rapid deterioration of the U.S. economy, which has increased the pressure for lower interest rates, will continue to lead the currency downward in coming days, dealers said.

“There is still a divergence of opinion whether recession has started,” said Robert Klein, senior vice president at CIC-Union Europeenne International in New York.

“But whatever your definition of recession, we have something nasty out there in the U.S. economy. That seems to indicate the dollar on balance will weaken.”

The dollar’s drop was spurred partly by the government’s weak employment report for October, released on Friday. Non-farm payrolls fell 68,000 in the month, the fourth consecutive decrease.

“The beginning of a full-blown recession is signaled by the latest October employment data,” said David Jones, chief economist of Aubrey G. Lanston & Co., in his weekly newsletter.

Most traders said the orderly nature of the dollar’s recent drop will prevent the central banks of the wealthiest industrial nations, the Group of Seven, from moving to support the currency.

“I believe the G-7 won’t protest an orderly decline by the dollar, given the deterioration of the U.S. economy since the last G-7 meeting in September,” said one dealer. “If people are looking for central bank intervention, they are likely to be disappointed.”

And if the economy suffers a shallow, six-month recession, as some expect, the dollar could reach 1.40 marks and dip below 120 yen early next year, some currency experts predict.

Supporting the view that U.S. interest rates were headed lower was Monday’s strong bond market. Prices rose slightly and rates fell despite this week’s huge Treasury refunding.

The benchmark 30-year bond rose three-quarters of a point, or $7.50 per $1,000 face amount, lowering the yield to 8.62% from 8.69% on Friday.

CIC-Union’s Klein warned that “sometime, maybe early next year, there will be a vicious and violent snapback by the dollar. There will be a change in psychology.”

Against other currencies, the dollar fell against the British pound, which closed at $1.9740, compared to $1.9590 late Friday.