The dollar, after hesitating on Tuesday, resumed its upward march in world currency markets yesterday, setting new records against the French franc and Italian lira and its highest price in almost 10 years against the West German mark and the Dutch guilder.
European central banks reportedly again intervened to slow the rise of the dollar but only in a token way--a virtual concession that the dollar is too strong to be manipulated in any meaningful way. Signs are accumulating that the well-publicized coordinated intervention, which started Aug. 1, may be nearing an end.
The main influence in the exchange markets yesterday, said Tran Q. Hung of Salomon Brothers, was the clear guidance from European central banks that they will not raise their own interest rates in an effort to stem the dollar rise.
In a widely quoted statement, German central bank President Karl Otto Poehl said the weakness of the German mark against the dollar was not a cause for alarm, seemingly ruling out a rise in German interest rates, which the markets earlier this week had suggested would take place today.
Meanwhile, the markets interpreted a comment by Federal Reserve Chairman Paul A. Volcker as a renewed warning that U.S. interest rates might go up further. That, coupled with the news from Germany, added to the dollar's attractiveness.
The "spread," or gap, between American and European interest rates is pulling investments into this country, the main source of the dollar's strength. Expectations of a rise in German interest rates, rather than central banks' intervention, had briefly stalled the dollar rise on Monday.
Treasury officials again would not comment whether the New York Federal Reserve Bank had been directed to intervene yesterday. But according to traders, the Fed was out of the market for the second day in a row.
Those familiar with the Fed's intervention operations said the U.S. government had not been trying last week to bring the dollar down to any specific level but merely to make traders more conscious that there is a two-way risk in their activities.
In making good on the Williamsburg summit commitment to cooperate in these matters, the United States had not been pressed by European central bankers for "major sustained action," one source said.
Adding to the significance of German central banker Poehl's statement, German Finance Minister Gerhard Stoltenberg said Bonn was opposed to any rise in German interest rates because it would work against the government's efforts to stimulate economic recovery.
Volcker's interest rate comment, a restatement of his warning of a potential clash of commercial credit and government financing demands, came late on Tuesday.
"The underlying conditions still point to a strong dollar," Hung said. "Here and there it may stall for profit-taking, but the long term trend is still up."
Irwin Kellner of Manufacturers Hanover Trust Co. said that after Poehl's statement, currency traders concluded that whatever intervention there might be from other central banks could not be enough to change the upward direction of the dollar.
Kellner said he anticipates some decline in the dollar because underlying economic trends may be shifting. He cited as an example yesterday's retail sales figures, which were well under what had been anticipated in Wall Street.
After closing at 2.6975 marks on Tuesday, the dollar shot up as high as 2.7265 marks yesterday, and closed at 2.7155 marks. These were the highest levels of the dollar against the mark since early 1974.
The French central bank intervened to bolster the franc, but the dollar, nonetheless, closed at a record 8.1825 francs in Paris, up from 8.09125.
In Milan, the dollar passed the 1,600 lire level for the first time in history, closing at 1,606.80 lire, up from 1,592.70.
The only major currency to resist the upward drive of the dollar was the British pound, which held steady through the day at $1.4835.
In Tokyo, the yen also was virtually unchanged at 244.45 to the dollar, compared with 244.55 on Tuesday. In New York, the dollar traded at 244.15 yen, up from 243.90.