U.S., Partners Move to Strengthen Dollar : Markets: The coordinated intervention to stabilize currency drives greenback up against the yen and mark.
The United States and other major industrial nations moved aggressively in international currency markets Wednesday to shore up the dollar, in what was seen as an attempt to head off a renewed slide during a period of uncertainty about the future of the U.S. economy.
The effort succeeded, quickly driving up the U.S. currency against the German mark and the Japanese yen.
The dollar closed in New York at 84.50 yen, up smartly from the Tuesday close of 82.79 yen, and at 1.4145 German marks, up from 1.3880. It had risen as high as 85.30 yen and 1.4190 marks during the day.
After several largely unfruitful interventions earlier this year, the United States and its partners had avoided such steps since early April. But in the view of currency traders in New York, the Treasury was spurred to action by the dollar’s precarious position combined with questions about monthly unemployment figures due out Friday. The buying spree was believed to have been coordinated with Japan, Germany, Britain, France, Canada, Italy, the Netherlands, Sweden, Belgium and Switzerland.
Treasury Secretary Robert E. Rubin announced the step in a brief written statement. He made it clear that the United States and its partners are ready to act again in the future, leaving speculators wary about betting against the dollar. Such speculation on the part of traders can drive the dollar down even when underlying conditions do not necessarily warrant a decline.
“We are prepared to continue to cooperate in exchange markets as appropriate,” Rubin said.
But U.S. officials refrained from discussing the operation. They were wary of jinxing the success of Wednesday’s action and were content to leave “some mystery out there,” in the words of one aide.
The intervention was the first since the finance ministers of Britain, Canada, France, Germany, Italy, Japan and the United States--the so-called Group of Seven--agreed April 25 to cooperate to maintain currency stability.
Treasury officials refused to disclose the extent of the intervention, but traders estimated that the Federal Reserve Board, acting as the Treasury’s agent, spent $1 billion buying dollars and that the other participants joined in with another $1 billion shortly after the operation began about 8:30 a.m. EDT.
Paul Farrell, manager of strategic currency trading at Chase Manhattan Bank in New York, said the trend that led to Wednesday’s action began last week, when the dollar weakened against the yen and mark in the wake of a surprisingly poor report on U.S. durable goods.
The report forced reassessment of the strength of the U.S. economy and led traders to anticipate even greater economic troubles, Farrell said. The action will be seen to have been a preemptive strike, he said, if Friday’s unemployment figures add to fears that the Fed--which has sought to gently cool down the economy through a series of interest rate hikes--instead has doused it with ice water.
While the intervention led to an increase in the value of the dollar, after the dollar had been relatively stable in recent weeks, the value of the U.S. currency remains off sharply from the beginning of the year, when the recent slide began. Since then, it has lost roughly 15% against the yen and 9% against the mark.
