The United States has stepped up intervention in the markets "very substantially" to bolster the dollar after it fell to an historic low level against the German mark, high-ranking Treasury officials said yesterday.
With prices gyrating, the dollar also fell against the Swiss franc and Japanese yen yesterday, and gold hit an all-time peak of $224.25 an ounce before the dollar stabilized somewhat.
The dollar dropped to 1.5580 Swiss francs from 1.5740 the day before, then rallied sharply to close at 1.5920. In Tokyo, the dollar closed at 187.50 yen, off from 188.90 Tuesday.
Most observers agreed that the latest bout of apparent dollar weakness is the product of an internal problem among European currencies. Switzerland has been concerned over the upward movement in the Swiss franc, especially against the German deutschmark.
It therefore took steps to depress the value of the strong Swiss franc, which led many market traders to switch to German marks. In addition, there were rumors that the D-mark would be formally revalued upward tin advance of the proposed institution next year of a new European monetary system, Treasury officials said.
On top of all of the uncertainties relating to European currency relationships, the markets still are waiting for the promised turnaround in the dollar, which officials predict will be forthcoming as a result of a better balance of payments among major countries in 1979.
When the foreign exchange market opened in Frankfurt yesterday, the dollar fell below 1.90 marks for the first time ever, trading at 1.8970. The low point observed by Treasury officials here was 1.8944, at which time the heavy U.S. intervention turned prices around. By noon, the mark was quoted at 1.9005.
U.S. Treasury officials said Swiss intervention was extremely heavy in the past few days. One estimate was that the amount of dollars bought over the past few weeks totals at least $2.5 billion.
But a New York report that the Swiss have been selling huge amount of dollars for other currencies at the same time was flatly labelled false by a Treasury official.
Carter administration officials tend to doubt the rumor about an upward valuation of the D-mark so far in advance of the first possible date for a new European monetary system. The rumor is based on the theory that a new EMS would be more viable if there were a realistic depreciation of the French franc and Italian lira against the D-mark. Such a realignment might be politically more feasible if the D-mark were to appreciate instead.
Although officials in Washington view the current problem as related more to containing pressures within the existing European currency "snake" than to basic U.S. economic conditions, financial market observers saw broader trends.
Acknowledging that the fundamental problem was the one in the snake, a New York banker said, "I find it curious that the dollar weakens also against sterling and the French franc (not in the snake.)
"Even those, like us, who are believers in the dollar come to a point where you decide whether to hang in there when the market moves against you," he continued. "The first object, after all, is not to lose dollars."
The snake links the currencies of West Germany, Holland, Belgium, Luxembourg, Norway and Denmark. They are supposed to float in a narrow band against each other, and jointly against the dollar.