NEW YORK -- The dollar tumbled 2.5 percent against the German mark yesterday and fell to a post-World War II low against the yen on the first trading day after leaders of the Group of Seven nations offered no plans to stabilize the U.S. currency.
"The G-7 meeting was a disaster for the dollar," said Amy Smith, senior currency strategist at IDEA, a consulting firm. "People can't believe the G-7 didn't protest the dollar's slide."
The dollar fell as low as 96.96 yen, below the previous postwar nadir of 97.73 yen set on July 1. It was last quoted at 97.60 yen, down from 98.10 yen on Friday. The dollar also fell against the mark, to a 20-month low of 1.5202 marks. It was last quoted at 1.5270 marks,down more than three pfennigs from 1.5617 marks on Friday.
The decline against the mark was the dollar's largest since August 1993, when the European Union's exchange-rate mechanism collapsed and investors poured money into marks.
Traders dumped dollars yesterday on speculation that the G-7 leaders, who met in Naples, Italy, over the weekend, wouldn't take steps to brake the dollar's fall. It has tumbled 13 percent against the yen and 12 percent against the mark so far this year.
After the economic portion of the summit on Saturday, G-7 finance ministers said only that the decline in the dollar wasn't justified. Treasury Secretary Lloyd Bentsen said the U.S. was prepared to defend the dollar when "appropriate."
Those comments weren't strong enough to deter dollar bears. They started dumping dollars Friday after President Clinton blamed "macroeconomics" and Japan's $60 billion annual trade surplus with the U.S. for the dollar's weakness, saying that the underlying strength of the American economy would ultimately raise the value of the dollar.
The G7 is composed of the United States, Japan, Germany, France, Britain, Italy and Canada.
Many traders sold again yesterday, interpreting the president's comments and the G-7's inaction to mean that the White House wasn't concerned about the dollar's weakness.
The U.S. Treasury tried to halt the dollar's slide in May and June, calling on the Federal Reserve and more than a dozen of the world's central banks to buy dollars enmasse. The buying sprees failed to steady the currency.
"The longer you let this go, the worse it's going to get," says Neal Soss, chief economist at First Boston. "The administration should have defended the dollar vigorously."
Many economists agree that the Clinton administration is playing a dangerous game if it willingly watches the dollar sink further.
"The bond and stock markets will follow the dollar lower," Albert Soria, foreign-exchange manager at Kansallis Osake Pankki, a Finnish bank, said. That's because foreign investors would sell U.S. financial assets when they expect a weakening dollar would eat away any profits they make on their investments. Mr. Soria expects the yield on the 30-year bond to rise to 8.35 percent as the dollar falls.