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Dollar Firms Up in Wake of Big Plunge : Traders Wait for Further Signs of Determination

September 25, 1985|PAUL RICHTER | Times Staff Writer

NEW YORK — The dollar recovered from the largest single-day plunge in 12 years Tuesday, then held steady as jittery currency-exchange markets waited for further signs that the United States is willing to sell off more dollars to improve the balance of international trade.

After dropping 4.29% on Monday against a trade-weighted basket of currencies, the dollar inched up 0.4% on Tuesday, according to U.S. Federal Reserve calculations. Late Tuesday in New York, the dollar was quoted at 2.72 West German marks, up 0.7% from Monday, while Japanese yen were offered at 229 to the dollar, up 1.3% from Monday.

Traders and analysts said the Western industrial nations' new effort to lower the value of the dollar, announced Sunday, was now reaching a critical phase. They said that, while the governments gained an immediate advantage in the wide publicity surrounding the announcement, they would need further proof of their resolve if the dollar is to continue its decline.

Favorable Development

The nations believe that a sustained decline in the dollar would make imports into the United States more expensive and ease the bulging U.S. trade deficit, thus reducing protectionist pressures in Congress.

Traders and analysts said Tuesday's stabilizing was probably a favorable development, since too rapid a fall would disrupt currency markets and harm economies.

"The announcement was worth a 5% drop in the dollar's value, and now the question is what (the governments) will do next," said Fred Bergsten, director of the Institute for International Economics in Washington.

While some economists remain skeptical about the benefits of intervention, Bergsten believes that such trading may be useful in hastening a decline that was under way before Sunday's announcement.

Traders said the West German, Belgian and Japanese central banks sold dollars into the currency markets Tuesday, and there were signs that the U.S. Federal Reserve Bank was joining in the action. But traders were made uneasy early in the day by statements by Commerce Secretary Malcolm Baldridge that the United States would not pump billions of dollars into the market, as had been suggested at last Sunday's meeting of the so-called Group of Five Western industrial powers.

In an interview, Baldridge said that the Reagan Administration had abandoned its view that intervention was appropriate only to right disorderly markets. He added, however, that he doubted "we would get into massive intervention."

Gained Briefly

"If they're trying to talk down the dollar, that's precisely the wrong comment to make," said Marc Cohen, a trader with Republic National Bank in New York. The dollar gained briefly following news reports of the comments but declined in later trading.

Other Administration officials have avoided elaboration on plans for intervention, and they also refused to comment Tuesday on Monday's sharp decline in the dollar's value. "We're not going to comment today, nor in two weeks, because this is a long-term policy," a Treasury spokesman said.

Analysts speculated that officials of the Federal Reserve Bank of New York might have leaked to traders word that they sold $250 million in Monday trading. They said such leaks are occasionally used to signal the market of the bank's interest in currency rates.

The dollar spurted briefly in Tokyo trading early Tuesday in what traders described as largely a result of purchases by multinational firms that wished to take advantage of the dollar's lower price. The dollar rose as high as 233 yen before declining to 230 yen in Tokyo.

The decline was aided by intervention by Bank of Japan, which traders said sold more than $1 billion. The bank's governor, Satoshi Sumita, acknowledged at a Tuesday press conference that the bank had joined in the trading.

The price of gold, which rose following Sunday's announcement, was mixed. Republic National Bank said the price of an ounce fell 60 cents to $329.50.

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