Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, August 17, 1995 TAG: 9508170044
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
The value of the dollar has advanced in a breathtaking fashion in the past few weeks, a trend that could yield subtle but important economic benefits for the United States and its key trading partners.
Professional money brokers in the $1 trillion-a-day foreign exchange market, where the dollar had been battered for much of the year, now say the currency is likely to keep rising for a while.
``The primary motivator in the market is a herd mentality, and it takes only a few leaders to get the herd moving,'' Jerry Egan, managing director of foreign exchange at MTB Bank in New York, said Wednesday. ``The same thing true on the way down is true on the way up.''
Since Aug. 1, the dollar has advanced 11 percent against the Japanese yen to 97.78 yen, and 7.2 percent against the German mark to 1.4782 marks, the highest exchange rate levels since February.
The dollar remains substantially below its 1994 year-end level of 1.5495 marks and 99.58 yen. But the magnitude and velocity of the dollar's rise has convinced many traders and economists that the currency could easily reach 100 yen and 1.50 marks, perhaps in the next few weeks.
``There is a perception that the dollar had fallen well below realistic levels, and this move up is only returning it to that realistic range,'' said Philip Braverman, chief economist at DKB Securities Corp. in New York.
The rising dollar's impact has no obvious or immediate effect on American pocketbooks and jobs.
Over time, however, it could lessen inflationary pressure by making foreign goods less expensive, keep interest rates stable, attract foreign investors and bolster domestic stock and bond prices.
The reasons for the shift in sentiment about the dollar vary widely. But a common denominator for the change is a recognition by economic policy-makers in the United States, Japan and Germany that the dollar's prolonged bout of anemia has become destructive for everyone.
Their attitude was demonstrated in a powerful way Tuesday, when the central banks of the world's three mightiest economies swooped into the foreign exchange market without warning, brazenly buying dollars and selling yen and marks in a skillfully orchestrated strategy called an intervention.
Big foreign-exchange traders and investors scrambled to follow their lead. Many expressed shock that Germany's Bundesbank central bankers, who historically have favored a strong mark because it represses inflation, were actively dumping their own currency.
``The fact that the Bundesbank sold marks while the mark was weakening was astonishing to old-timers,'' said Egan. ``That just had people floored.''
Others said the intervention's success silenced any resilient thoughts that the United States wants a lower dollar as leverage in its long-standing trade disputes with Japan.
The weak dollar has made American products and services more affordable in Japan, but it's also hurt the competitiveness of Japanese manufacturers and exporters, resulting in squeezed profits and job losses.
Both countries now view the yen's strength against the dollar as a serious threat to the health of the Japanese economy, which has languished in a recession for years.
U.S. concerns about Japan have been heightened recently because its banking system is deeply troubled by bad loans, financial markets have largely stagnated and property values have dropped. These are all symptoms of a profound malaise remotely akin to America's Depression economy in the 1930s.
``It's not in the interest of the United States to have a weak Japanese economy,'' said Ramon Espinosa, vice president and senior economist at the Bank of America in San Francisco. ``To the extent the stronger dollar takes pressure off Japan, that's good.''
To a lesser extent, Germany's economy also will benefit from a stronger dollar because it will indirectly lower the cost of German products and services, which are among the highest among the industrialized countries. German growth has fallen, and unemployment is growing as a result.
``The dollar's weakness was hurting everyone,'' said Richard Vullo, a vice president at the New York branch of Hypo Bank, a large German bank. ``We can't have it go in one direction forever.''
by CNB