CURRENCY : Central Bank Action Forces Dollar Down

The dollar slumped in foreign exchange Tuesday after the central banks of several nations entered the market to force the U.S. currency lower.

Gold prices rose sharply in domestic trading in response to a rally in the silver market. Republic National Bank of New York quoted a late bid of $445.75 an ounce, up $8.25 from late Monday.

Dealers said the dollar fell as the Bank of Japan and West German and Swiss central banks entered the market in the second consecutive day of intervention against the U.S. currency.

John McCarthy, vice president of foreign exchange at Irving Trust Co., said traders sold the dollar because of the aggressive tone of the intervention.

Dealers in Europe said the intervention was not large but was significant because the central banks seemed to be trying to push the dollar down rather than just restrain its rise.

Some of Tuesday’s decline was because of profit taking after the dollar’s surge during the past eight weeks, McCarthy said.

Britain Raises Rate

Jack Barbanel, a first vice president with Gruntal & Co., said interest rate hikes overseas, which he said are unlikely to be matched in the United States during an election year, gave strength to other currencies and contributed to the dollar’s decline.

On Monday, Britain’s commercial banks raised their base lending rates for the sixth time since early June.

The dollar closed sharply lower against the British pound Tuesday. The pound rose to $1.70385 in New York, compared to $1.6745 late Monday. In earlier London trading, sterling rose to $1.6937 from late Monday’s $1.6693.

The dollar slipped to 133.155 Japanese yen in New York, compared to 134.515 late Monday. It had closed at 133.90 yen in London and dropped 1.30 in Tokyo to close at 133.85 yen.

Other late dollar rates in New York, compared to late Monday’s prices, included: 1.8535 West German marks, down from 1.8749; 1.5374 Swiss francs, down from 1.5565; 6.2515 French francs, down from 6.3445; 1,374.00 Italian lire, down from 1,388.00, and 1.19735 Canadian dollars, down from 1.2065.

Other late dollar rates in Europe, compared to late Monday’s rates, included: 1.8640 West German marks, down from 1.8823; 1.5475 Swiss francs, down from 1.5625; 6.2845 French francs, down from 6.3415; 2.1010 Dutch guilders, down from 2.1130; 1,383.60 Italian lire, down from 1,390.50, and 1.2011 Canadian dollars, down from 1.2095.

Silver prices rose sharply on technical factors in New York, giving a boost to gold in the process.

Silver soared to $7.727 an ounce on the Commodity Exchange in New York from late Monday’s $7.15. In earlier London trading, the metal was unchanged at $7.13.

Gold picked up $8.70 on the Commodity Exchange, closing at $446.50. In earlier London trading, gold rose to a late bid of $437, compared to $436.25 bid late Monday.

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