CURRENCY REPORT U.S. dollar continues to weaken

Press, Volume CXIV, Issue 33480, 11 March 1974, Page 17

CURRENCY REPORT U.S. dollar continues to weaken

In an active market last week, the United States dollar retreated against most major currencies, its trade-weighted average depreciation since December, 1971, widening to 5.09 per cent from the previous 1.58 per cent, the Bank of New South Wales said in its weekly foreign exchange report.

jment later in (he week 'stemmed mainly from ? shortage of short-term sterling funds which forced up overnight rates tn touch 100 per cent for the second sue-, cessive dav In a quieter market late in the week, sterling eased! back against the dollar in ) response to comments bv an lenvoy of the League of Arab States that there was a bet-) ter than even chance that: the Arab oil embargo on the! United States would be lifted next week. . On the short-term outlook, jfor Australian dollars, the! bank said that it seemed; [ likely the existing paritv I (would be maintained, for the! following reasons: This is necessar” to contain strong inflationary pressures. Economy still fully extended and there are shortages of resources and products in many areas. )i Strong consumer demand persists. ; Appreciated exchange rate ) because of U.S. dollar 1 tie is a major restrainj ing influence. > Threat of imports inhibit I price increases and ini’ duce resistance to cost >) pressures e.g. wage dell mands.

Sterling recovered sharply, early in the week against' the dollar, gaining close toj sc. Behind the improvement in the British pound was the resolution of the British ; political stalemate by the i i formation of a minority ) Labour Government, which raised hopes of a speedy end to the coalminers, dispute! and the three-dav working', week. Further marginal improve-

On the other hand, revaluation seems to be ruled out, because There have been substantial tarriff cuts which have the effect of a revaluation on import prices. On a trade-weighted basis, the dollar has appreciated about 5 per cent since the September revaluation.

High domestic inflation rates are impairing Australian competitiveness.