U.S. dollar still bearish

Press, 19 August 1985, Page 30

U.S. dollar still bearish

NZPA New York The bearish sentiment which bore down on the United States dollar so heavily earlier in the week remained very much intact on Friday, dealers said. The currency closed little changed from Thursday’s levels, however.

Brokers said pessimism about the dollar’s prospects was intensified by a 2.4 per cent drop in American housing starts in July and an unchanged capacity utilisation rate last month.

But a reluctance to open new short positions at the end of a week in which the dollar had already lost five pfennings staved off further selling, and the currency escaped further damage, ending at 2.7555/70 Deutschmarks, compared with 2.7580/10 on Thursday. The dollar started the day labouring under its failure to benefit from Thursday’s cuts in official West German and Dutch interest rates and an unexpected bulge in America’s Ml money supply, dealers said.

While some economists believe rampant money growth will prevent the Federal Reserve Board from easing its grip on credit, and may even prompt it to nudge up interest rates, dealers said the view on the foreign exchanges was that the patent sluggishness of the economy ruled out a significantly tighter monetary policy. Other weak U.S. economic data last week included a 0.2 per cent rise in industrial output and a 2.1 per cent drop in business sales. For all the forecasts of a further dollar fall to 2.70 marks or below, the seasonally listless pre-week-end market was in no mood to make a determined assault on the next key support level of 2.75 marks, dealers said. Instead, traders were content to play for small stakes between 2.75 and 2.76 marks for most of the day, ignoring a drop in U.S. credit market yields and a phalf-point dip in the Federal funds rate to 8 per cent as technical pressures eased.

With the U.S. dollar for the most part gliding down in the kind of soft landing that Federal Reserve Board and Government officials have hoped for, dealers reported no intervention by major central banks.

Sterling closed firm at $U51.4015/25 against $U51.4005/15 on Thursday, after high real U.K. interest rates and worries about Middle-East oil supplies

The Swiss franc was even stronger, gaining to $U52.2560/ 90 from $U52.2640/70 on Thursday, thanks to improved interest rate differentials after the Swiss National bank’s decision not to match the Bundesbank’s interest rate cuts.

The rise in gold, which gained SUSII an ounce in two days, failed to help the rand, which quickly lost almost 15 per cent of its value in early Johannesburg trading on Friday in an initial reaction to Thursday’s speech by South African president P. W. Botha. Disappointed that Botha did not offer fundamental reforms of the apartheid laws, the market drove the rand as low as 38.50/39.50C, from 45.20/40c at Wednesday’s Johannesburg close, before bargain hunters and the South African central bank stepped in. By the end of the day in New York, it had recovered to 41.25/42.25c, but still looked weak.