‘Worse to come yet for currencies’

Press, 13 July 1984, Page 8

‘Worse to come yet for currencies’

PA London Sterling touched a new record low against the United States dollar on foreign exchange markets on Wednesday, but rallied after Britain’s big four commercial banks announced a sharp 2 point rise in their base lending rates. The dollar, buoyed by high interest rates and a strongly recovering economy, has gained against all major currencies in recent weeks. But the pound, weakened by sagging oil prices, British industrial disputes, and soaring money supply figures, has suffered more than most. It fell to 1.2975 dollars in early London trading on Wednesday, but firmed to 1.31 dollars after the banks said they were raising to 12 per cent the rate at which they lend to their best customers.

The Bank of England also raised the rates at which it supplies funds to the money markets. The banks raised their base rate to 10 per cent from 9% only last Friday,

but dealers said the previous move had failed to halt the slide which has seen sterling lose some 13 per cent of its value against the dollar since early March.

With little buyer interest in anything but the dollar, the West German mark was fixed at a 10-year low of 2.8447 to the dollar and the Japanese yen traded at around 242, down from Tuesday, although better than its 10-month low of 242.95 to the dollar in Tokyo earlier on Wednesday.

The Swiss franc was more than one centime weaker than on Tuesday at around 2.40 to the dollar, and the French franc nearly five centimes down at 8.71 to the dollar.

Although prices in afternoon trading were generally firmer than those quoted early, dealers said worse was yet to come for world currencies.

On the United Kingdom interest rate front, Barclays moved first after the Bank of England signalled that it was prepared to let rates go up despite the Prime Minister (Mrs Margaret

Thatcher’s) assurances in Parliament that no further drastic action was needed to aid the pound. High interest rates make the currency more attractive to investors. High United States rates have been a key factor in the dollar’s recent strength that has adversely affected other currencies. Sterling’s troubles have sent shares on the London stock market plunging. The currency has been depressed by a 17-week-old coalminers’ strike, an escalating dockers’ strike, the money supply increase, and an oil glut that has cut the value of Britain’s North Sea oil, the country’s economic lifeline.