Dollar Declines, Dropping 1.1% Against Yen --- Most Other Units Also Gain Against U.S. Currency As Interest Rates Rise
The dollar fell 1.1% against the Japanese yen and posted smaller declines against major European currencies in activity dominated by cross-trading and technical moves.</br></br>The U.S. currency also was undercut by interest-rate increases in West Germany and rumors of a rise in the Japanese central bank's key rate. After major U.S. banks raised their prime lending rates half a point to 9 1/4% yesterday, speculation also heated up about a discount-rate increase by the Federal Reserve Board.</br></br>Rate increases overseas would tend to make dollar-denominated investments less attractive and decrease demand for the U.S. currency. Although the boost in U.S. prime rates provided some support for the dollar, traders expressed fears that higher U.S. rates will only constrain an already troubled economy and fail to help the currency.</br></br>"If the economy isn't doing well and the interest rate goes up, that is only going to hurt the economy more," Yani M.A. Budiman, vice president, corporate foreign exchange, at Chemical Bank, New York, said.</br></br>In late New York trading, the dollar stood at 145.20 yen, compared with 146.78 late Tuesday. The dollar was down 0.5% against the West German currency at 1.8231 marks, compared with 1.8328.