Dollar plunges to a new low: New York dealers blame Clinton and predict currency has even further to fall

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The Independent Online
THE dollar beat even the gloomiest forecasts with a steep fall to new lows when markets reopened yesterday after the weekend summit meeting of the Group of Seven.

By the time London traders packed up last night, the US currency had reached DM1.5371 , its lowest value against the German mark since October 1992, and had fallen to Y97.33. It was still falling in New York.

New York currency dealers said the volume of trading was not heavy, but continued speculation could take the dollar down to DM1.50 within a day or two. Josh Feinman, an analyst at Bankers Trust, said: 'I do not see an end to this weakness in the near term. The foreign exchange market can move in mysterious ways for long periods.'

Figures on wholesale prices in the US will be published today, and on consumer prices tomorrow. Any sign of higher-than-expected inflation would provide an excuse for further selling of the currency.

The dollar's September 1992 low of DM1.3870 could be breached within a few weeks, some analysts said.

All agreed that President Clinton's repeated remarks had contributed to the crisis. Mr Clinton had said that the US economy was fundamentally sound, and the dollar would find its own level.

Chris Iggo, an economist at the New York investment bank, Chase Manhattan, said: 'The dollar is being used as an indicator of lack of confidence overall in the administration.' He said there was even a suspicion that some politicians welcomed the fall because it would eventually help trim the country's huge trade deficit with Japan.

Traders said the dollar's weakness began with foreign investors selling their US assets but had become a broader speculative attack. Ending the fall in the currency would require an interest rate rise, consistent public statements by Mr Clinton and his officials, and an indication of how progress would be made on trade talks with the Japanese.

There was little expectation of any official intervention by central banks to support the dollar. Most analysts thought the German authorities would not take part because they believe attempts at stabilisation are ineffective.

The former Federal Reserve governor, Wayne Angell, now a commentator at Bear Sterns, said he thought the Fed was falling behind in its fight against inflation. The next scheduled meeting of the Fed's Open Market Committee, which sets key interest rates, is due on 16 August. Mr Angell said he expected an intervening meeting to raise the US Federal Funds rate from 4.25 to 4.5 per cent.

The yield on the benchmark 30- year US Treasury bond rose above 7.75 per cent yesterday.

The dollar's weakness is beginning to raise fears about possible increases in British interest rates. David Miles, an economist at Merrill Lynch in London, said: 'There is certainly now concern that the dollar's fall will weaken the pound, meaning we could have an early base rate rise.'

The pound fell from DM2.42 to close at DM2.40.

(Graph omitted)