CURRENCY REPORT Dollar falls sharply; sterling strong

Press, Volume CXIII, Issue 33230, 21 May 1973, Page 19

CURRENCY REPORT Dollar falls sharply; sterling strong

Foreign exchange markets last week have been in a highly volatile state, with the United States dollar again weakening sharply in early trading, under persistent world-wide selling pressure, according to the weekly foreign exchange report from the Bank of New South Wales.

The weight of dollar sales moderated late in the week, although exchange rate movements remained sharp. At the week-end the United States dollar had recovered some of its earlier heavy losses.

The price of gold also declined, and this was given as one factor in the dollar’s recovery.

However, some dealers believe that with the present system of floating exchange rates, and with the European joint float standing up to the strain, speculative pressures simply became exhausted. They believe that only the absence of fixed exchange rates between the dollar and other key currencies stopped the situation from developing into a full scale crisis.

The United States political and domestic economic situation, together with the news of a huge $10,200 million deficit in the United States balance of payments for the first quarter of this year, all contributed to the unsettled atmosphere. Sterling stood all week at higher levels than at any time since the pound was allowed to float, in June, 1972. Reports that the British authorities were unhappy at the unduly high rate for sterling appeared confirmed when the Bank of England minimum leading rate was cut back to 8 per cent. During the week the Bank of England intervened to attempt to stabilise the pound, but even so sterling closed at $2.5470. Its highest level was $2.5700. The nervous state of the market was. reflected in the free market price of gold piercing the $lOO barrier for the first time.

Overnight Eurodollar deposits averaged 7| per cent. Term Eurodollar deposits are:— One month 8 5/8 per cent; two months, 8) per cent; three, four, and five months 8 9/16 per cent; six months, 1 year, and 2 years, 8 11/16 per cent; three and five years 8 9/16 per cent. The latest cross rates to

the dollar for main currencies are:—Deutsche marks 2.7880-2.7900; commercial French francs 4.4425-4.4475; financial French francs 4.4350-4.4450; Swiss francs 3.1620-3.1630; Japanese yen 265.000-265.50; and Dutch guilders 2.8810-2.8840. Gold was $103.50 at the first fixing, and $104.25 at the second.