The dollar fell sharply yesterday, after a slight pause on Tuesday, pushed by rumors of foreign exchange intervention by Japan and France, financial analysts said yesterday.
The 1 percent decline in the dollar in New York yesterday has now put the currency at its lowest level since June 5, 1984.
Analysts cited reports in the Japanese press that Japan's central bank is attempting to peg the dollar to a lower rate and uncertainty about whether the Federal Reserve and other central banks would intervene in foreign exchange markets to force the dollar lower.
The dollar was mixed in European trading.
Some analysts said that the French central bank intervened to prevent a run on the French franc following rumors that that country's cabinet was considering a mass resignation. The resignation rumors, related to the Greenpeace scandal, were untrue.
So far, the finance ministers of the United States, Britain, West Germany, France and Japan have pushed the dollar down by 6 percent against the West German mark, analysts said.
The ministers announced on Sunday that they would try to drive the dollar lower in an attempt to improve the U.S. trade balance and prevent the passage of a flood of protectionist legislation in Congress.
What the dollar will do in the next few days depends to a great extent on whether the Federal Reserve attempts to ease credit conditions and push down U.S. interest rates, and whether central banks intervene or traders think they will, analysts said.
"The dollar does remain a weak currency," said William V. Sullivan Jr., a vice president at Dean Witter Reynolds Inc. "Unless there's a major change in the news, the dollar will drift lower. The dollar is still for sale. People are not willing to risk major long commitments to the dollar," Sullivan said. "Clearly, the [finance ministers'] agreement has put the market on notice and the market's on balance, so to speak."
However, the central banks eventually will have to intervene to prove that they are serious.
"The first three days after an announcement is not an acid test," Sullivan said.
"What is happening here is a lot of people are very uncertain at the moment as to exactly whether the central banks are going to intervene and how frequently they are going to intervene," said Leonard Santow, a part owner of the firm of Griggs & Santow Inc. "You have a lot of people sitting and waiting, not knowing what to do."
Sullivan and other analysts said the Fed was active in supplying reserves to the system, but it was interpreted as being purely technical and not related to the Sunday announcement. Nevertheless, the Fed move "exercised a lot of downward pressure" on the dollar, Sullivan said.
Another source of downward pressure yesterday came from reports that a Tokyo financial newspaper said that the Bank of Japan would peg the dollar to about 220 to 210 yen, equivalent to about 2.50 German marks, which would be a low level for the dollar.
So far, the dollar has fallen from 2.84 marks on Friday to 2.6795 yesterday in New York, about a 6 percent drop. The dollar has fallen from 238.949 yen on Friday to 226.65 yen, about a 5 percent decline.
According to the Fed, the dollar fell 1.13 percent against 10 other leading currencies yesterday after moving up 0.4 percent on Tuesday. On Monday, the dollar made its sharpest retreat in 12 years, falling 4.29 percent against the Fed's index.
Analysts said that so far the finance ministers have been successful in orchestrating the dollar's decline and preventing a run on the dollar, which would cause a massive outflow of funds from U.S. capital markets and force interest rates higher here.
Other factors that could affect the dollar this week are the U.S. merchandise trade deficit figures to be released tomorrow. The financial markets expect the deficit to be about $12 billion to $13 billion.
If the deficit is larger, it could suggest that the central banks could put more pressure on the dollar or that the third-quarter increase in gross national product -- the nation's output of goods and services -- would be revised down from the 2.8 percent growth estimated by the government last week.
Dollar rates in New York yesterday, compared with late rates Tuesday, were: 2.6795 West German marks, down from 2.7155; 2.2035 Swiss francs, down from 2.2285; 8.1800 French francs, down from 8.2950; and 1.35845 Canadian dollars, down from 1.3604.
The pound rose to $1.4455 from 1.4290 late Tuesday.