Currency report

Press, 1 March 1982, Page 24

Currency report

The United States dollar has firmed in foreign exchange markets, mainly as a consequence of the stable U.S. interest rates and increased concerns that they will remain high in the future, says the Bank of New South Wales in its weekly foreign exchange report. During the last year the foreign exchange markets have tended to over-react to market information changes with increasing ferocity thereby necessitating constant technical reversals. With this in mind, it is reasonable to assume that the present rally of the U.S. dollar will not be sustained. The main opposing factor to this view is that Europeans use any decrease in U.S. deposit rates as an excuse to lower their own rates thus reducing any advantage gained, The E.M.S. realignment,

although long expected, took many by surprise. Most European Finance Ministers have been at pains to explain that the Belgian franc 8.5 per cent devaluation was purely a catching-up exercise as opposed to a competitive devaluation. Had the Belgians devalued 12 per cent as they wished, the E.M.S. would have come under heavy strain as other currencies (French franc and lira) would have wanted to adjust to be able to compete on equal terms. As mentioned before, the Europeans have taken every opportunity to lower their domestic deposit rates. The United Kingdom is no exception; this week the Bank of England lowered its bill rates between a sixteenth and a quarter of a point. This was followed by two clearing banks lowering the base lending rate from 14 to 13.5 per cent.