Dollar rises sharply as gold falls

Press, 27 October 1982, Page 35

Dollar rises sharply as gold falls

PA London The United States dollar bounded higher on foreign exchange markets yesterday amid disappointment that the recent trend towards lower American interest rates seemed to have stalled, currency dealers said. The dollar advanced close, to or above its recent highs against the pound sterling, the Swiss and French francs, the Italian lira, and the Japanese yen — because there was no change in the United States discount rate announced on Friday. The markets had anticipated a further cut in the 9.5 per cent rate at which the United States Federal Reserve central bank lends

money to commercial banks, and when it failed to materialise, the dollar gained strength. It gained more than five yen in value in Tokyo today to 276.40 yen. the highest in more than five years, and came close to 277 yen in trading in Europe. In Paris, it was quoted at about 7.20 francs, just one franc below its all-time high, while in Frankfurt it was quoted at 2.5528 West German marks, more than three

pfennigs above Friday's level. In Zurich, the dollar was traded at 2.1955 Swiss Francs, just short of a fiveyear high against the franc. The pound was close to a five-year low of $1.6840. and the dollar gained on all other currencies. Morgan Guaranty Trust Company, in New York, said that its measure of the dollar, weighted on the basis of trade with 15 industrial nations, rose to 122.6 yesterday. surpassing the previous record of 122.4 on October 5. and the highest level since the bank began keeping such records in January. 1970. The index stood at 100 in March. 1973.

Support for the dollar came from renewed expectations that the differential between United States interest rates and those in Europe would widen, said James T. McGroarty. assistant vice-president of Credit Suisse in New York. The change of sentiment on Wall Street and on foreign exchanges reflected disappointment that the recent trend towards lower American interest rates seemed to have stalled, analysts said.

“Although there is a widespread feeling that the 'Fed’ is loosening its monetary policy, the (stock) market needs constant reassurance that this is so.” Monte Gordon. of the Dreyfus Investment firm, said." The renewed strength of the dollar robbed gold prices of some of their recent gains; ■European bullion dealers quoted the metal at SUS4IB an ounce yesterday, down sharply from the New York close on Friday of $435.

Gold prices tend to move in the opposite direction of the dollar as investors switch from one to the other. Lower interest rates usually boost the value of "solid” investments like gold, and high rates do the reverse. Dealers in Zurich said that yesterday's gold price decline was partly in reaction to Friday's news that the supply of money and cheques in circulation in the United States rose $3200 million in the latest reporting week. This figure suggests that United States authorities wmuld hesitate before lowering interest rates to keep the supply in line with longerrange’ • targets which are meant to slow inflation.