Currency report

Press, 7 September 1981, Page 24

Currency report

Market activity last week was dominated by uncertainty over United States interest rate movements and heavy European central bank intervention, according to the weekly foreign exchange report from the Bank of New South Wales. European central bank intervention may have exceeded SISOOM, and it was clearly designed to unsettle the market and take the "speculative" strength out of

the United States dollar. With the United States dollar hitting increasingly high levels, the Europeans have become even more concerned about the detrimental impact of the rise on their domestic economies. However, sluggish domestic activity in most European economies effectively limits the extent to which interest can be pushed up to support the local currencies. Most governments rates feel that a further boost in interest rates would choke off any recovery in economic activity by the end of this year.

Therefore, huge intervention in the foreign exchange market is really the only tool left to support their declining currencies. The yen weakened against the dollar' last week, partly .because Japanese banks bought United States dollars to cover relatively high levels of import settlement needs. The yen was further weakened late in the week when Japanese traders bought United States dollars with yen after they had eariier sold United States dollars forward at a higher price.