Bentsen pledges to prop up dollar: Dealers sceptical over absence of concrete rescue proposals - European stock and bond markets recover

Click to follow
The Independent Online
LLOYD BENTSEN, the US Treasury Secretary, yesterday moved to dispel any impression that the Clinton administration would leave the dollar to its fate on the international markets, indicating that Washington would support it if necessary. But currency dealers remained to be convinced.

Mr Bentsen's remarks completed a flurry of official statements that included President Clinton talking up the economy and emphasising the strong US fundamentals. 'In the end the markets will have to respond to the economic realities,' he said.

As Mr Bentsen spoke the dollar appeared already to be recovering from its historic plunge against the yen and the mark on Tuesday. But it dropped below Y101 on disappointment that he had failed to outline any concrete proposals.

European bond and stock markets had a better day yesterday, awaiting news from the US and fearful of central bank support for the dollar. The FT-SE 100 closed 20.2 higher at 2,960.4 in light trading. Gilts also recovered some of the ground lost earlier in the week, buoyed by a stronger performance in European bond markets. The Bundesbank cut its 'repo' interest rate by five basis points to 5 per cent, suggesting the key discount rate may fall next month.

The pound suffered slightly after the publication of the minutes of the 4 May meeting between the Chancellor of the Exchequer and the Governor of the Bank of England to discuss interest rates.

Kenneth Clarke and Eddie George agreed that the economy was growing at, or a little above, its trend rate and that inflation remained subdued.

They agreed there was no case to change interest rates and that the next move could be either up or down. Sterling fell 0.3 to 79.6 per cent of its 1985 value.

European markets had closed by the time President Clinton said he and Mr Bentsen had agreed on a strategy for protecting the dollar. Mr Bentsen confirmed he was 'concerned by recent movements in the exchange markets'.

Hinting that the US would first consider launching a co-ordinated effort among central banks to prop up the dollar, he added: 'We continue to be in close touch with our G7 partners, and we continue to be prepared to act as appropriate.'

In a scheduled appearance before a congressional panel, Alan Greenspan, chairman of the Federal Reserve, said: 'Secretary Bentsen and I have been following developments very closely because we cannot be indifferent to major movements in our currency.'

While repeating familiar warnings about inflation, Mr Greenspan underlined the continuing recovery. 'The outlook for the US economy is as bright as it has been in decades,' he said.

Mr Greenspan gave no clue whether the Fed might consider a further rise in US interest rates.

View From City Road, page 37

Comments