Financial Post, Weekly edition, Thu 27 Apr 95, page 42

US$ rebounds on G-7's foreign-exchange stand, then fades

Reuter

The US$ rallied against leading currencies yesterday after leaders of the Group of Seven industrialized nations demonstrated a unified front in facing turmoil in the foreign-exchange market.

The US$ surged 3% against the yen, its highest level in three weeks, before it gave back some of the gains in profit-taking. In late New York trading, the US$ was quoted at 1.3723 German marks, up from 1.3692 marks late Tuesday. The US$ also rose to 83.67 yen from 81.80 yen.

The G-7 - composed of Canada, Britain, France, Germany, Italy, Japan and the United States - issued a joint communique Tuesday night saying the US$'s drop was not justified.

The communique called for an "orderly reversal" of the weakness in the US$, which has fallen more than 15% against the mark and yen. It said the G-7 would continue to cooperate in foreign exchange markets.

The US$ rose on the statement, which was released after the close of New York trading, and maintained its momentum into the morning.

Currency dealers had expected little news from the meeting and struggled to cover their positions, which fed into the rally.

"The bounce has been substantial," said Bob Lynch, currency analyst at consulting firm MMS International. "The rise in US$/yen dragged the other exchange rates higher."

But the upswing ran aground as dealers began to realize the G-7 had little to back up its stance. It did not indicate it would commit to standing behind the US$ through co-ordinated intervention or changes in interest-rate policy.

"You can say what you want, but if the market perceives you to be powerless how much more effect are you going to have?" said Lizbeth Goldberg, dealer at Bayerische Hypotheken Bank.

While national leaders criticized currency levels as unjustifiable, dealers projected that the greenback would find little sustained support from the meeting. "I don't think they've done enough to improve the technical tone in the market," Lynch said. "With the auto trade talks still looming, we have room to fall further."

In other late New York trading yesterday, the US$ traded at 1.1355 Swiss francs, compared to 1.1305 Swiss francs late Tuesday, while the British pound stood at US$1.6130, almost unchanged from US$1.6135 late Tuesday.

	This Information is provided by the Financial Post.
	Please send comments to: g8@utoronto.ca Revised: June 3, 1995

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