French franc falls

Press, 13 May 1981, Page 23

French franc falls

NZPA-Reuter London The world’s money markets, already under strain from a strong United States dollar, received a new jolt yesterday as the French franc tumbled in the wake of Francois Mitterrand’s Socialist triumph in the French Presidential election. The weakness of the franc, which did not stabilise until late afternoon on European foreign exchange markets, dragged down the currencies of the European Monetary System (E.M.S.). in which the main West European currencies except sterling are linked in a joint float against outside ones. The dollar was therefore even more buoyant than last week when it forced France and Switzerland to push up their interest rates. American interest rates, boosted last Monday when the United States Federal Reserve Board raised its discount rate from 13 to 14 per cent, are the basic factors behind the dollar’s strength.

The latest switch of funds from the franc into the dollar could add to concern in West Europe about the effects of the Reagan adminis-

tration's policy of high United States interest rates to curb inflation, financial analvsts said.

Europeans fear the continuing credit squeeze will delay their hoped-for recovery from one of the severest recessions since the 19305. The dollar was at its highest for more than 10 years against the French franc yesterday afternoon. 5.3325 on Friday and dealers said they thought the Bank of France ~ intervened to sell both dollars and marks. The United States currency also reached 2.0730 Swiss francs after Friday’s 2.0500, while the pound sterling fell back a cent from Friday to trade at 2.1055 dollars and the West German central bank, the Bundesbank. refrained from intervening on the markets when the dollar was fixed at its highest level in Frankfurt since 1977.

The Bundesbank’s present policy is to intervene as little as possible in the hope that the present strains will prove to be short-lived.

The price of gold rose above SUSSOO an ounce at one stage yesterday for the first time ’ in just over a

month, as investors fled from the French franc and the metal received a boost from concern over the Lebanese conflict. But it later fell back to trade at about 5493. seven dollars up on Friday.

West Germany's worries about United States monetary policy are expected to emerge at a meeting at Kronberg, near Frankfurt, on Friday between United States' Treasury Secretary. Donald Regan, and German Finance Minister, Hans Matthoefer.

Mr Regan will be on his way to a meeting of the interim committee, the main policy-making body, of the International Monetary Fund (1.M.F.) in Gabon next week — where concern is also likely to be expressed among the finance ministers about the present United States course.

Washingtons policies, however, have many defenders who feel the administration is justified in crushing inflation as the main priority-

In Washington yesterdav, Mr Regan predicted a fall in United States inflation. He told reporters: “I can see us going into single-digit inflation next year.”