Sterling falls to four-year low

Press, 4 March 1983, Page 11

Sterling falls to four-year low

NZPA London The British pound, battered by uncertainty over oil price cuts, fell in Europe to a fouryear low against major currencies on Wednesday, after briefly plunging through the psychologically - important SUSI.SO level against the dollar. Gold, which had lost more than SUSIOO during a week of hectic selling, recovered some of its glitter and was trading about SL’S43O an ounce in London and Zurich.

The Bank of England’s trade-weighted sterling index. comprising a basket of currencies of Britain’s major trading partners with a 1975 base of 100. was at a fouryear low of 79.6 points at the market opening before edging up slightly to 79.7 at noon before easing to 79.6 at the close. It closed at 80.0 points on Tuesday.

Financial analysts said the market in sterling was very nervous, awaiting the result of an Organisation of Petroleum Exporting Countries (OPEC) meeting this weekend to seek a new oil price level.

The pound was fixed at 3.657 West German marks tn Frankfurt, its lowest since November. 1978. It traded briefly at 5U51.4980 in New York yesterday and opened at SCSI .4993 in London before recovering to around $U51.5065. Dealers said they believed the Bank of England had bought sterling in both New York and London to help prop up the value of the currency.

Major currencies were generally stronger against the dollar, including the mark, which has been unsettled ahead of Sunday’s West German General Election.

The mark was fixed at a record high against the franc in Paris on Wednesday, with the French currency hit by a massive trade deficit and political uncertainty before the municipal elections throughout France.

Dealers said the dollar was down on expectations that interest rate cuts in the United States would make the United States currency less attractive to investors, although hopes of economic recovery were helping the stock market.

Sterling started its latest drop in late January after members of OPEC failed to reach agreement on pricing and production policies to deal with the world oil glut. Investors fear a steep drop in oil prices will hit Britain’s balance of payments and government revenue. The consequent weakness of sterling could increase inflation

and force up interest rates, adversely affecting the economic recovery.

Financial uncertainty may also affect possible tax cuts in the British budget to be presented to Parliament on March 15. Gold, which had traded at more than SUSSOO an ounce on February 22. fell sharply in the following week to below SUS4OO an ounce, before rebounding during the past few days to its present level.

The price of gold, regarded as a haven by investors in times of political and financial uncertainty, and a hedge against inflation, had fallen in part because of investor expectations that lower oil prices would boost economic growth without inflation. But market analysts said they had been surprised at the rapidity and rate of decline.

"I think this rally will 1 probably extend itself to : around the $450 mark on tne i bouncing ball theory." one ■ analvst said.

But there was still a tremendous amount of uncertainty around, and it was likely that if oil prices dropped, gold would also fall again, he said.