Dollar gains as Germany hints at interest rate cut

October 21, 1992|By Bloomberg Business News

NEW YORK -- The dollar advanced again yesterday on signs that the wide gap between U.S. and German interest rates might narrow and on expectations that Democrat Bill Clinton will be the TTC next president.

After holding overnight rates at 8.9 percent in recent weeks, the Bundesbank said yesterday that it would hold a variable-rate repurchase tender, or repo, today.

That move was viewed as a prelude to a decline in the Lombard or discount rates, weakening the mark at the expense of the dollar, traders said.

At the same time, "people are starting to think that a Clinton presidency will be bullish for the dollar," because Clinton's expansive budget program could be inflationary and drive interest rates higher, said John Duffy, a trader at Bayerische Vereinsbank.

"It's sinking in that we're not going to get another interest rate cut in this country," said Frank Pusateri, a vice president at the Bank of Boston.

The dollar closed at 1.5188 marks, up from 1.4995 marks Monday, and could rise as high as 1.53 marks today, traders said.

Investors are so focused on what a Clinton administration would do that they're paying less attention to current economic indicators, traders said.

Yesterday, the market shrugged off news of a 1.4 percent rise in U.S. housing starts in September, to a seasonally adjusted annual rate of 1.256 million.

Despite the bullish sentiment, however, some investors remain skeptical about the prospects for a German rate cut, and said the dollar might retreat toward 1.49 marks in the next few days.

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