Currency report

Press, 30 May 1983, Page 23

Currency report

The recent increase in the United States money supply again boosted an already strong United States dollar, says Westpac Banking Corporation in its weekly foreign exchange report.

These above-target money aggregates, coupled with the recent signs that the United States economy is sustaining its recovery, left operators cautious of maintaining short United States dollar positions. Interest rates had risen across the board last week with, most dealers trading at 8.75 per cent for most of the week. However, most dealers believe that the Federal Reserve Bank will not tighten credit markets, for fear of stifling the current United States economic recovery. Opinion polls in the United Kingdom show that the Conservatives continue to maintain their substantial lead of some 15 to 17 per cent over Labour. The apparent ease with which this margin is being maintained led to many operators buying sterling on expectations

that a Thatcher victory is merely a formality. As this sentiment gathered momentum, sterling reached its current levels of 1.5880/90, which on a trade-weighted basis, is a 1983 high. “We expect the pound to remain relatively strong, but it would weaken again on book squaring and profit taking as the election date nears,” the bank says. The Japanese yen eased last week on the back of the •dollar’s underlying strength and caution over positions held by I.M.M. (International Money Market) operators who, despite some : stop-loss covering, are still holding substantial yen long positions. The deutschmark continues as one of the weakest of the major currencies. A good breakthrough of the 2.4700 level late the previous week led to the dollar reaching a high of 2.4960 DM/SUS. However, the ever-present fear of Bundesbank intervention, and a general nervousness over the new high, eased the dollar back to its current level of DM2.4890. “We expect the dollar to ease slightly in the next few days as many operators squared their books ahead of the Williamsburg summit (this week-end), May 28, and the holidays in New York and London today. We believe a clearer picture on the- dollar’s next direction should emerge after the week-end summit meeting.”