Currency report

Press, 27 July 1981, Page 22

Currency report

Once again the attention of foreign exchange markets was focused mainly on interest rates last week, says the Bank of New South Wales in its weekly foreign exchange report. News that U.S. money supply figures rose brought a hardening in both domestic U.S. interest rates and also Euro-dollar rates. The narrowly defined Mlb measure showed an increase of $6.9 billion while the market had been expecting a figure in the range of plus $3 to $5 billion. With the firmer interest rates came a considerably firmer dollar on exchange markets. In the wake of the stronger U.S. unit, sterling remained weak — especially

against the continental currencies. At one stage it was traded as low as $1.84 — its lowest level since June, 1978. However, the Bank of England intervened in support of its currency. Short-term U.K. interest rates finned up by about one percentage point during the latter part of the week, which resulted in the pound regaining some of its losses. European countries were unsuccessful in their bid to pressurise the United States to reduce interest rates at the Ottawa summit meeting it would appear that some of the Europeans may have decided after the meeting to jointly support their currencies by direct intervention in the market as some Central

Banks, notably the West Ger- * man Bundesbank and also the Bank of France, were seen to be selling dollars heavily the day after the meeting.

Further depreciation of the yen brought a concerted effort by the Bank of Japan to support its currency. It is.' believed they have sold more - than one billion dollars this, month; however, the currency has continued to slide. Pressure on the Japanese to reduce their trade imbalances with many countries, particularly the European Economic Community, is cited as being the major cause for the declining con fidence of investors in the yen.