G7 intervention fails to halt the dollar's slide

For a second day yesterday, the US Federal Reserve intervened in the currency markets in a vain effort to halt the dollar's slide after it touched another historic low against the yen. In a co-ordinated response by the Group of Seven industrial nations, central banks in Japan and Europe joined in, spending an estimated $2-$3bn in less than two days.

There was no sign, however, of the intervention doing anything more than slowing the slide.

The US currency rose briefly from a first low of Y94.10 before falling below the 94 level.

Analysts on Wall Street warned that further damage to the dollar may be in store. As well as reaching record lows against the yen and Swiss franc, it was close to its all-time low of 1.3860 against the mark yesterday and is soon expected to pass that point.

The US Treasury Secretary, Robert Rubin, was forced to speak out in support of the currency. "A strong dollar is in our national interest," he said in a statement. "That is why we have acted in the markets in concert with others.''

Mr Rubin, who came under renewed attack for the Treasury deal to shore up the collapsedMexican economy, sought to reassure investors by pointing to President Clinton's commitment to improving the economic scene in the US, including further reductions in the budget deficit.

Some members of Congress re-opened the Mexican issue yesterday, claiming that Mr Rubin had acted beyond his powers in committing $20bn to help Mexico stabilise its economy, contributing to the dollar's difficulties. Jim Istook, a Republican Congressman who led the attack on Mr Rubin, remarked: ``I think what is happening may be only the beginning of a very long siege against the dollar.''

Analysts in New York said the dollar was suffering in part because of the perception that it had fallen well behind the mark and Swiss franc as preferred safe-haven currencies.

Statements last week from Alan Greenspan, the Fed Chairman, in which he indicated that the cycle of raising interest rates might have come to an end, were also blamed.

These views were shared in Europe. Neil MacKinnon, chief economist for Citibank in London, said: ``Investors here cannot see any reason to buy dollars. The central banks are fighting a losing battle.''

Traders on Wall Street are worried that the dollar's plight may prompt the Fed to consider one more rate increase. The concerns also hit the US bond market.

The German mark strengthened against other European currencies, including the lira and peseta, although the pound held its ground.

Steve Barrow, currency analyst at Chemical Bank on London, said: ``There is nothing to drive the mark lower, and a lot still to strengthen it.''