News of EMS meeting firms U.S. dollar

Press, 12 January 1987, Page 26

News of EMS meeting firms U.S. dollar

PA New York The United States dollar closed firmer as participants digested news that the European Community Monetary Committee would meet early on Saturday in Brussels. Many dealers here believed that an European Monetary System (EMS) realignment would occur this week-end. The prospect of a mark revaluation drew funds into the West German currency for much of last week and undermined the dollar. Analysts noted that the dollar pasted only modest gains despite intervention on its behalf by central banks, and respectable December U.S. jobs data. The dollar ended at 13175/85 marks, up slightly from 1.9140/50 on Thursday but well off day’s highs. European currency markets remained in turmoil ahead of the weekend, with central banks stepping in to boost the dollar, French franc, and several other West European currencies.

Despite tension in the eight-nation European Monetary System (EMS) joint float, leading many

traders to expect a realignment of EMS parities soon, currency dealers said it was unlikely exchange rates would be reset this week-end.

A realignment has been widely anticipated by the markets after the West German federal election on January 25.

The dollar came under renewed pressure late on Thursday after the United States Treasury Secretary, James Baker, said its decline did not presage renewed inflation- Dealers took that to mean Washington was prepared to see the dollar fall tower.

Early on Friday the Bank of Japan supported the U.S. currency, buying more than SUS2 -billion. Japanese authorities are concerned that the dollar's fail against the yen is hurting Japanese exporters. The dollar closed in Tokyo at 158.35 yen after 157.55 on Thursday in New York.

But the effects of the Japanese intervention were short lived. “As tong as the economic situation in the United States doesn’t change there’s absolutely no reason to buy the dollar,” said one dealer for a UX bank here.

“Friday’s intervention should put a floor under the dollar for a while. But we feel it will drop to 1-85 marks by early February because of poor fundamentals” said

Earl Johnson of Harris Trust and Savings Bank in Chicago. He added an EMS realignment might boost the mark by a pfennig in the meantime. Many speculated that the mark would be revalued by three to four per cent, the French franc would be feft unchanged, and other European currencies would be devalued shghily. However, some dealers contended the EMS realignment would not occur until after West Germany's elections on January 25. Morgan Guaranty Trust Co. said the dollar’s tradeweighted value at midday was 0.4 per cent above average market rates in 1980-82, unchanged from yesterday. This past week was extremely volatile for Chicago currency futures, as the Mart* marl contract dropped as tow as 0.5175 on Monday before rising to a high of 0-5243 on Thursday. "The market will probably remain volatile until the EMS situation resolves itself.” said Jason Gillard, an analyst with Paine Webber Inc. in Chicago

As long as European central banks continue to intervene to temporarily allay a realignment in the EMS. the dollar win be tossed around in currency markets, analysts said. If there is a realignment of EMS currencies this weekend some expect a drop tn Swiss franc futures relative to mark futures.