Bad economic news dampens dollar's rise against mark

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The Independent Online
THE DOLLAR briefly touched a 20- month high of DM1.7040 yesterday, amid speculation that the US Federal Reserve would tighten monetary policy later this summer and persistent hopes that German interest rates would be shaved next month.

But poor economic news helped to dampen the rally and the US currency closed little changed at DM1.6915.

Orders for US durable goods fell 1.6 per cent in May after a revised 0.2 per cent fall in April, while the Fed's latest survey of the US economy said business activity expanded at a 'slow to moderate' pace in May and early June.

The dollar's rise against the mark may resume, however, after George Soros, the speculator, renewed his attack on Bundesbank policies, which he said were starting to fail.

Speaking in Budapest, Mr Soros said there ought to be a significant fall in German rates in the wake of recession. 'The Bundesbank is hesitating, it still wants to force the government to cut down on the budget deficit and refuses to move.'

The Bundesbank was also trying to protect the value of the mark, Mr Soros said. 'I think they are trying to accomplish the impossible, and they are now beginning to fail.'

In Britain, meanwhile, official figures provided further evidence of recovery, with a 10 per cent rise in construction orders in the three months to April. Although this was less than half the expansion rate in March, the Department of the Environment said signs across most sectors of the industry remained encouraging.

Investment by UK-based financial institutions meanwhile rose sharply to pounds 11.1bn in the first quarter from pounds 8.3bn in the fourth quarter.

Net investment in unit trusts and property unit trusts rose to a new peak of pounds 2.2bn after pounds 500m in the first quarter. Net investment by long-term insurance funds rose to pounds 5.7bn from pounds 4.1bn.

Investments in gilts edged down by pounds 200m to pounds 3.1bn after substantial net investment in the second and third quarters of last year.

Net investment in UK company securities jumped to pounds 5.2bn in the first quarter after pounds 6.1bn for all of 1992.

The volume of new construction orders was just 1 per cent higher than in the comparable period a year ago. In contrast, orders in the three months to March jumped by 22 per cent after a 5 per cent increase in the three months to February.

But in one strong indication of recovery, new orders for private housing jumped by 29 per cent in the latest three months and stood 13 per cent higher than the same period a year earlier. Public housing and housing association orders surged by 21 per cent in the three months and were 34 per cent above levels a year ago.

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