Dollar gets a lift after Fed fails to cut rate

October 07, 1992|By Bloomberg Business News

NEW YORK -- A declining belief that U.S. interest rates will be cut soon and fresh sales of German marks strengthened the dollar yesterday against the mark and helped it hold its ground against the Japanese yen.

The dollar got a lift yesterday morning when the Federal Reserve failed to signal a cut in the federal funds target rate, now 3 percent, during its normal intervention period, traders said.

The absence of a rate cut disappointed investors, who earlier sold the dollar on the hunch that signs of weakness in the U.S. economy -- including Friday's report of the loss of 57,000 jobs in September -- had all but ensured a rate cut of 25 or even 50 basis points, traders said.

The dollar finished at 1.4267 marks, up 3/4 pfennig from 1.4194 marks Monday.

Investors are now waiting to see whether the Fed will slash the discount rate today, after its Open Market Committee has met. No matter what happens, however, the worst might be over for the dollar.

"I've been impressed to see how little time we've actually spent below 1.40" marks, said John McCarthy, chief dealer at ABN-Amro Bank. "If we test that level and it holds, it may be the bottom for the rest of the year."

The dollar also received indirect help yesterday from investors who sold marks for other currencies, reversing earlier trades to book profits.

The notion that rates across the Atlantic are easing is also helping the dollar. The Bundesbank has recently been keeping its overnight rates at 8.9 percent to 9 percent, well below its 9.5 percent Lombard rate.

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