Currency report

Press, 9 August 1982, Page 18

Currency report

U.S. interest rates continued their decline during the past -week, with the six month eurodollars offer rate touching 13% per cent al one stage, says the Bank of New South Wales in its weekly foreign exchange report.

This rapid decline was brought about by another cut in the Federal Reserve Bank’s discount rate to 11 per cent which was immediately followed by a reduction in the prime rates of the major U.S. banks to 15 per cent. However, recent large Treasury Bill auctions have placed considerable pressure on the credit markets, and U.S. interest rates are not expected to move any lower for the next few weeks.

The foreign exchange markets were very volatile last week with the U.S.

dollar gaining . strongly against all major currencies. This sudden upward surge in the dollar surprised FX dealers who had been expecting the dollar to move lower in line with' the decline in interest rates, and this resulted in panic buying of U.S. dollars to cover short positions. News that Israel may have begun their final assault on West Beirut only served to increase the buying pressure.

It has become apparent that the Europeans are taking every opportunity to lower their domestic interest rates in an attempt to stimulate their ailing economies.. As a result the U.S. dollar is expected to remain strong as long as the interest differential in the dollar’s favour continues to remain around current levels.