The U.S. dollar soared to new heights against European currencies yesterday, touching its highest level against the West German mark in almost 10 years, as major central banks gave signs that they were easing away from their effort at coordinated intervention.
For the first time in more than a week, the Treasury did not order the Federal Reserve to go into foreign exchange markets in an effort to hold the increase in the dollar's international value.
But when the dollar rose to 2.7027 West German marks in Frankfurt--the peak since 2.7240 marks on Feb. 15, 1974--the German Bundesbank responded by selling dollars, and was joined in a modest effort to moderate the decline of the German currency by the central banks of Switzerland, Italy and Austria. The mark closed off fractionally from the day's high at 2.6975.
Yesterday's rise by the dollar was a continuation of the trend of recent months, accentuated by an increase in the prime commercial bank lending rate from 10 1/2 percent to 11 percent, which some traders suggested was a justification for the dollar's strength.
But there was a growing feeling among New York foreign exchange market experts that the willingness of central banks to intervene was cooling in view of the extraordinary strength of the dollar.
Many believe that the volume of last week's intervention was very limited, much less than originally reported. Economist Tran Q. Hung of Salomon Brothers Inc. said in a telephone interview that the total intervention by all banks was only between $1 billion and $2 billion, which he observed "is very limited."
He noted that in past years, when the German Bundesbank was trying to hold down the mark, it was not unusual for it to sell $1 billion in marks in a single day, or even in a few short hours.
David Jones, senior vice president of Aubrey Lanston, a New York securities firm, said that "given the massive flow of funds triggered by high interest rates," there is little that central banks can do, except to try to moderate the market at moments when it is disorderly.
He said that the American intervention effort last week was never directed toward reversing the actual trend in the market, but only toward trying to stabilize the markets when they became erratic.
Irwin Kellner, chief economist of the Manufacturers Hanover Trust Co., added that the central banks "appear to have learned a lesson last week" when the dollar resisted the intervention moves.
Kellner and Jones feel that the dollar may be at or near the top of the present cycle against the major hard currencies--the yen, German mark and Dutch gilder--although it is likely to go up further against the French franc and the Italian lira.
Jones added that in the event the dollar tips down today against the strong European currencies, he wouldn't be surprised to see the Fed intervene moderately to push the price a bit more in that direction.
It is in just such cases, "operating at the margin," that intervention can sometimes have its greatest effect, according to former assistant Treasury secretary C. Fred Bergsten.
Dealers said that the Bank of Japan intervened yesterday when the dollar hit its highest level of this year against the yen at 244.55, up from 244.15 Friday.
The dollar touched new records against the French franc and Italian lira. In Paris, where the dollar broke the historic barrier of 8 francs last week, it closed yesterday at 8.121 French francs, up from 8.0825 on Friday. In Milan, it hit 1,598.75 lire, up from 1,591.70 on Friday.