$US up in U.S. but down in Europe

Press, 5 October 1987, Page 16

$US up in U.S. but down in Europe

NZPA-AP New York The American dollar drifted higher on Friday in North America against most major currencies in quiet domestic trading after failing overseas. Dealers said there was little activity in the currency markets, partly because some traders took the day off before the Jewish Yom Kippur holiday week-end. Mr Robert Ryan, a senior trader for Irving Trust Company attributed the dollar’s improvement to technical factors. Some traders said . the dollar might have been mildly supported by unfounded reports that Iran was preparing to declare war on the United States. The rumour sparked some short-covering in the foreign exchange markets, traders said. In a short sale, traders sell borrowed dollars hop-

ing to replace them later with others bought at a lower price. An Increase in value could precipitate a rush of buying by traders trying to cover their positions. Mr Jim O’Neill, a vicepresident and financial markets economist i for Marine Midland Bank, said sentiment toward the dollar has improved since last month’s Group of Seven meeting in Washington. “The overriding factor of the market, as it had been all week, is trying to find out what the market can get away with under the rules set by G 7,” said O’Neill. "The least risky alternative is to slowly push the dollar higher.” In Tokyo, where trading ends before Europe’s business day begins, the dollar' fell against the Japanese yen for the first time in nine trading days. It closed the week at 146.30 yen, down from Thursday’s 146.77 yen. Later, it rose to 146.855 yen in New York, up from 146.325 yen Thursday. The British pound sterling fell to 1.6190 dollars from 1.62225. Other late dollar rates in New York, compared with Thursday’s close: 1.84535 West German marks, up from 1.83975; 1.5380 Swiss francs, up from 1.53125; $Can1.30635, down from 5Can1.30675; 6.1405 French francs, up from 6.13095; and 1331.50 Italian lire, up from 1327.875. In London, the dollar ended the week higher, boosted by official statements at the International Monetary Fund meeting in favour of currency stability. However, the dollar’s rally was limited by lingering pessimism American trade fundamentals and dealers saw any upward move next week meeting strong resistance at the 1.8550 mark and 148 yen level. Central banks were “dying to offload some of their dollars at these levels,” a dealer said. The dollar closed at 1.8415/25 marks, compared with 1.82045/10 the previous Friday and at 146.25/35 yen versus 143.65/75. The dollar ended the day lower in London, however,

after a dull session, as the momentum generated by proposals by the UJS. Treasury Secretary, Mr James Baker, and the Chancellor of the Exchequer, Mr Nigel Lawson of commodity-linked currencies started to wear off. The next impact of U.S. jobless data, showing a fall in September to 5.9 per cent from 6 per cent in August was neutral because of worries about wage-inflation pressures. The threshold at which wage inflationary pressures caused by manpower shortages would filter through was getting closer, said Mr George Magnus, an international economist at Warburg Securities. He put the threshold about 5.7 per cent, and said these pressures might be felt early next year, pushing interest rates higher and therefore depressing the U.S. bond and stock markets.

There was a rumour overnight in Asia that the G 7 had agreed to lower the yen trading ranges, but dealers here tended to discount it No sharp movement was expected this week,.with the U.S. trade figures for August expected on October 14. Mr Magnus forecast a deficit of around SUSI 4 billion, compared with 5U516.47 billion in July and $15.71 billion the previous month, because of seasonal factors, lower oil prices, and lower car imports. “This would be an improvement but not a good figure,” he said. “Assuming monthly deficits will stay at that level for the rest of the year, the shortfall for 1987 would still run higher than last year’s SUSI6O billion deficit” he said. “People got long on dollars because of the IMF meeting, but I think the market is far too nervous to get much longer at the current (rate) levels,” a dealer said. Meanwhile, sterling ended the week lower against the dollar, hardly changed against the mark, after the Bank of England was seen intervening to defend the three-mark level. It closed at 2.9840/80 marks after 2.9865/9910 last week and at 5U51.6205/15 after $U51.6420/30.