COMMERCIAL Turbulent money market in Europe last week

Press, Volume CXV, Issue 33740, 13 January 1975, Page 10

COMMERCIAL Turbulent money market in Europe last week

Turbulent conditions returned to European foreign exchanges earlylast week, and the United States, and Swiss currencies were the centrt of attention, when the decline of the dollar against the franc evoked the first Swiss intervention in two years, the Bank of New South Wales says.

Swiss authorities have preferred other measures, such as negative interest rates on non-resident deposits, and their aim, as seen by dealers, is to weaken the Swiss franc against leading currencies by intervening through the United States dollar. In spite of this support, and that of other European central banks the United States dollar reached a 17-month-low against the European joint-float currencies. The fresh flight of confidence in the dollar was triggered by steep falls in Euro-currency interest rates, which were reacting to the decline in United States domestic interest rates, and by conjecture about the extent to which monetary conditions are to be eased to counter the United States recession.

By the end of trading on Wednesday the dollar had staged a recovery as the market appeared hesitant to continue marking down the currency. Central bank support, for the third consecutive day, and the Swiss announcement of further restrictions on forward Swiss franc sales to foreigners, assisted the dollars recovery, -the bank says. Sterling also continued to hit new lows and the index of its effective depreciation since the Smithsonian agreement equalled the recordlow, registered in midDecember of 21.9 per cent. The outlook for sterling appears quite unfavourable at least for the next two years. The latest United kingdom trade deficit of £534m was the worst on record.

The United Kingdom overseas reserves had been propped up by borrowings from Arab states, but a fall of SUS 1035 m to is67B9m occurred in December, partly as a result of operations to support the pound after Saudi Arabian rejection of sterling as a payment medium for oil.

The United Kingdom balance of trade position is likely to worsen as the world recession deepens during the first half of 1975; the O.E.C.D. predicts that the United Kingdom will be the only industrial country to increase its inflation rate during 1975, and inflation is hitting the export sector particularly badly. United Kingdom export prices have risen sharply

over the past year: the November index was 32 per cent above the level of the previous year, indicating a rapid erosion of the United Kingdom’s competitive position.

In addition, the lack of confidence in the local industrial climate may deter capital inflow from oilproducing, and other nations, the Bank of New South Wales says.