Currency report

Press, 23 November 1981, Page 24

Currency report

.The U.S. dollar weakened on the currency markets- last week, mainly because of a‘ decline in U.S. interest rates, says the Bank of New South Wales in its weekly foreign exchange report. The Federal Reserve Bank abolished its surcharge of two percentage points charged on top of its base discount rate of 13 per cent to frequent borrowers from the ‘Discount W'indow’. The move had been expected by the market and therefore there was no major reaction other than some banks reduction in prime lending rates from 17 to 16.5 per cent and one bank to 16 per cent.

Leading economic indicators in the U.S.A, are showing signs that the current recession is somewhat deeper than first thought, and this is also depressing the U.S. unit.

Sterling gained considerable ground in the wake of the weaker U.S. unit, mainly as a result of the widening interest rate differential in favour of the pound. Bank of England activity in the money market has indicated that they are content with

the current higher interest rates and they also seem content with the current value of the pound. Earlier threats of possible strike action by the miners has not affected trading and the latest favourable information to hand indicates some indecision amongst the union members. 1 Continental currencies weakened along with the dollar on expectation that their interest rates will fall also. The German mark in particular lost considerable ground against sterling and also against the ven. In the E.M.S. joint float’the Danish crown is in top place, the French franc second and the German mark is now bot-tom-placed. The yen made considerable gains during the week as U.S. banks actively purchased negotiable yen denominated certificates of deposits (C.D.) at interest rates averaging 7.37 per cent. Although higher rates are still offering in U.S.A, the yen is expected to firm against the dollar in the coming months because Japan s economic outlook is strong, making the yen investments more attractive.