The dollar had one of its worst days ever on the foreign exchange market today as European financial institutions apparently carried out a New Year's resolution to sell the U.S. currency short.
In percentage terms, the dollar chalked up its biggest one-day decline ever against the Swiss franc, falling 3.3 per cent. It depreciated by nearly 1.6 per cent against the mark, 2.2 per cent against the pound, 1.8 per cent against the guildor, and 1.2 percent against the French franc.
Gold, meanwhile, soared $4.25 an ounce to $169.50, its highest level since late May 1975.
European central banks offered the U.S. currency only minimal support. The Bundeshank bought $6.75 million at the Frankfurst fixing, which set a record low for the dollar. The Swiss National Bank also intervened, but to a limited extent.
Dealings still hadn't returned completely to normal following the holidays and yearend considerations. But dealers noted a distinct one-way tone of trading against the U.S. currency. Institutions were said to be widely opening new positions in the harder currencies while shorting the dollar.
Traders didn't rule out the possibility that the situation may correct itself somewhat if normal commercial demand starts to give the dollar a lift. But they said the overall trend for the dollar appears to be down so long as the U.S. continues to post huge monthly trade deficits and U.S. monetary officials maintain a posture of so-called "Benign neglect."
The dollar hit a record low 2.0850 marks on the West German foreign exchange after closing last night at 2.1090 marks.
Most dealers in Frankfurt said they expected the dollar to fall below 2.10 marks if the United States Federal Reserve Board did not show its support of the battered currency early in the new year.
At one stage in London, on the first business day of 1978, the pound cleared $1.95, its highest level since March 5, 1976, when it fell below $2 for the first time.
The dollar tumbled to a record low 1.9225 Swiss francs at the close, from 1.9887 yesterday.
Gold, on the other hand, closed in Zurich tonight at its highest for more than two years, at just over $169 an ounce, reflecting uncertainty as people took refuge in metal rather than paper currency.
The dollar's decline also caused strains within the European joint float, of which West Germany is a member.
The demand for marks caused the German currency to rise against other float currencies - whose countries have pledged to maintain their currencies within a narrow band of trading values - and the Bundesbank bought 400,000 Norwegian crowns at the fixing to stop the crown from falling below its floor limit of 40.975 marks per 100 crowns.
The other monetary units in the float - the Dutch guilder, Belgian and Luxembourg francs and the Danish crown - all lost ground against the mark during the day.
Although the dollar's fall was attributed by European dealers to continuing uncertainty over the American economy, the pound's buoyancy reflected optimism over Britain's economic prospects.
Some dealers forecast a further rise in the pound, perhaps to the $2 level, although they noted that the Bank of England may intervene to curb the currency's rise if it becomes too sharp. This could hamper Britain's drive to increase exports, which become relatively more expensive as the pound appreciates against other currencies.