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Dollar Falls to Postwar Low Against Yen : Currency: Greenback also continues its decline against German mark. British pound surges to four-month high.

March 03, 1995|From Times Wire Services

NEW YORK — Under a barrage of selling by investors worldwide, the dollar plunged Thursday to a post-World War II low against the Japanese yen as a muted U.S. intervention did little to bolster the sagging currency.

The dollar also fell sharply against the German mark, losing two pfennigs, while the British pound spurted to a four-month high.

"This is the selloff that was waiting to happen," said Amy Smith, senior currency strategist for the New York financial advisory firm IDEA, noting that the dollar has been steadily weakening against the mark for several months. "It was only a matter of time before the dollar-yen rate started to follow."

Market participants said the selloff was triggered as Japanese companies moved to repatriate money held in the United States, part of an annual effort to improve their balance sheets before the March 31 end of Japan's fiscal year. That entails selling dollars and buying yen.

Dealers also cited as a concern a report by Japan's Jiji news agency that quoted Federal Reserve Board member Lawrence Lindsey as saying the dollar-yen rate wasn't yet at "critical levels." That suggested the Fed would not take action to defend the dollar.

However, in the first such support operation since Nov. 2-3, when the Fed spent $2.2 billion to defend the dollar, the central bank bought U.S. currency and sold yen and marks Thursday, traders said. The Treasury Department confirmed the action but gave no details on the currencies sold or the volume.

Several traders suggested that the Fed spent about $300 million to $500 million in the effort. That brought the currency up modestly from its lows. But analysts said the limited volume and the fact that the U.S. government acted alone meant the move wasn't likely to deter market participants from pushing the dollar down again.

"Unless there's a sustained follow-up by the Bank of Japan and European central banks, it's not going to have much impact," said Ezra Zask, president of Ezra Zask Associates Inc., a money management firm in Norfolk, Conn.

Once the dollar breached the previous record low against the yen--a key psychological barrier--institutional investors with big dollar holdings began to fear a free fall and rushed to sell in order to limit their losses. The dollar-yen drop quickly escalated into a broad-based dollar selloff.

In New York trading, the greenback fell as low as 94.95 yen, exceeding the previous nadir of 96.08 yen reached Nov. 2. By the close of trading, the dollar was worth 95.26 yen, down from 96.78 on Wednesday.

The stampede included investment pools that cater to wealthy individuals, known as hedge funds, as well as mutual funds and some banks, dealers said.

"Big investors were bailing out," said Steven Flanagan, a vice president in New York for France's Credit Agricole. "Portfolio managers couldn't afford to sit back and say, 'This is overdone.' They had to sell when it broke."

Apparently fearful that the chaotic selloff would undermine the U.S. stock and bond markets, the Treasury Department ordered the Federal Reserve Bank of New York to intervene in the currency market to arrest the dollar's decline.

The dollar also dropped to 1.436 marks before recovering to end the day at 1.442, down from 1.462 on Wednesday.

The British pound surged to $1.614, its strongest level since early November. It closed at $1.586 on Wednesday.

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