The U.S. dollar rallied yesterday, prompting a disagreement among market experts over the wisdom of the concerted intervention by central banks that sent it plunging Wednesday.
According to most reports, while there may have been additional selling of dollars yesterday by the West German Bundesbank early in the day, the amount was small, and not coordinated with other banks as was the case Wednesday.
Central banks apart from the Bundesbank, according to some reports, were trying to depress the dollar yesterday by checking with currency buyers, asking for prices without making deals, or offering to sell very small amounts. "What they were doing, successfully it turned out, was making the market think they were doing more than they were, in other words outsmarting us," one dealer told United Press International.
The dollar ended higher against most major currencies, but still was below the peaks that have been registered in the prior few days. The dollar was quoted in Europe at 3.3325 marks, up from 3.3300 Wednesday. In London, the British pound eased to $1.0827 from $1.09, while in Paris, the French franc dipped to 10.22 to the dollar from 10.18 the day before.
Gold prices were lower. In London, gold was down to $288.75 an ounce from $289.50 Wednesday, while the March contract on the New York Commodity Exchange was settled at $287, off $1.
Foreign exchange specialists, still trying to untangle all of the details of Wednesday's European intervention, were not agreed on whether the United States had joined in the effort to bring the soaring dollar down. The consensus seemed to be that if the Federal Reserve, on orders from the Treasury, had intervened, it would have been a token effort. The Fed did not appear to be intervening at all yesterday.
In any event, most observers agree that with no change in the fundamental economic situation, it would be difficult to reverse the upward climb of the dollar by intervention alone. As long as economic growth in the United States exceeds the pace in Europe, economists say, capital investment money will flow here, boosting dollar prices.
But to the extent that intervention is selected as a tool to dampen speculation, it appears to be useful only when the private markets are kept guessing about the next move. On that point, there was wide disagreement on Wednesday's operation.
"If they the central banks make a decision to intervene, they have to do it for more than one day, maybe for five or six days to create enough uncertainty and apprehension," said Henry Kaufman of Salomon Bros. in New York. "The intervention strategy has to be well thought out."
Given the absence of heavy intervention yesterday, Kaufman raised the question whether the Wednesday operation was really useful. Because of the extremely sharp rise of the dollar over many months, he suggested, there might have been a correction anyway.
On the other hand, Robert Hormats of Goldman Sachs said the intervention operation "had created more doubt than there was before, adding to the risk of taking speculative positions." If the European banks had intervened heavily yesterday, they might have been accused of trying to fix exchange rates at some specific level, he said.
"But speculators know that they have the potential of coming in again with large amounts of money, so I think it is a more subtle strategy, forcing traders to act with caution," Hormats said.
In New York, one market participant acknowledged that many dealers were "shell-shocked" by the wide swings of prices since the week began, and many were out of the market because of uncertainty. One said that many of his colleagues were "just too tired" to trade yesterday after the jarring events of the preceding 24 hours.