Currency report

Press, 2 June 1981, Page 22

Currency report

The United States dollar’s continued underlying strength against most currencies occurred despite easier Eurodollar deposit rates in the wake of the decline in United States money supply aggregates last week, according to the Weekly foreign exchange report from the Bank of New South Wales.

. Speculation and rumours, particularly in relation to European developments, were features of nervous trading on foreign exchange markets. The United States currency was also supported by renewed concern about the political situation in Poland.

United States interest rate movements and expectation also supplied conflicting signals to the market. Initially, the dollar was supported by the Federal Reserve’s action in draining reserves, and further rises in short-term rates. Later, prime rate rises could not outweigh a decline in Eurodollar rates and a statement by the United States treasury under-secretary (Mr Sprinkel) that United States interest rates could begin to ease soon.

Sterling held its own during the week against most major currencies apart from the United States dollar. The pound, like the Swiss franc,

benefited particularly from the general weakness of the EMS currencies engendered by the falling French franc. Some commercial buying also aided sterling.

The yen weakened against most major currencies, prompting limited central bank intervention on a number of occasions to slow the decline. The Japanese currency’s weakness was particularly apparent against the United State dollar, reaching a nine-month low of 225.30. Thereafter, the yen recovered slightly on profittaking by banks, and export covering by Japanese traders.