Debt fears, peso crisis send dollar into dive

January 13, 1995|By Bloomberg Business News

NEW YORK -- The dollar tumbled against major currencies yesterday, suffering its biggest one-day loss against the yen in five months, as investors sought a haven from countries with large debt burdens, such as the United States, Canada and Italy.

Concern that the United States is considering expanding its $9 billion credit line to Mexico to rescue it from its financial crisis also weighed on the dollar, traders said.

The flight to countries with low debt started after Mexico's decision to devalue the peso Dec. 20, triggering a rout in its financial markets as foreign investors fled. The crisis raised concern about other countries that depend on foreign capital.

"This is a worldwide flight away from anyone with any debt," said Richard Koss, currency sales manager at Canadian Imperial Bank of Commerce in New York. "Investors are wholly unwilling to finance other people's problems. They are running to places perceived to have good local savings behavior -- like Germany and Japan."

The dollar tumbled to a six-week low of 98.62 yen earlier in the day, before finishing at 98.73 yen, down from 100.08, where it was quoted Wednesday. The dollar fell as low as 1.5260 marks, its lowest level since Nov. 11, before ending the day at 1.5280 marks, down from 1.5373 marks late Wednesday.

The dollar suffered most against the yen because traders were skeptical about whether progress in trade talks would help curb the $60 billion U.S. trade deficit with Japan. The deficit means Japanese exporters have a wealth of dollars to convert into yen when they send revenue home.

The Canadian dollar fell to 70.40 U.S. cents yesterday, its lowest level in almost nine years. In response to the weakening currency, Canadian banks said yesterday they would raise their prime lending rate today to 8.5 percent from 8 percent.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.