Futures Markets: Foreign Currency Futures Fall Sharply As Prime Rate Rises; Brief Slide Is Seen
Foreign currency futures prices closed sharply lower, as the dollar strengthened and a dozen or so U.S. banks raised their prime lending rates one-quarter percentage point to 7 3/4%.</br></br>The decline may continue over the next few days, analysts said. The futures, though, will resume their rally once the correction has run its course, and the dollar will turn downward, they maintained.</br></br>Treasury bond futures prices also dropped. Traders feared that the prime rate increase was a harbinger of widespread interest rate increases and rekindled inflation.</br></br>In comments apparently aimed at calming the markets, Treasury Secretary James Baker told a House panel that he hoped the prime rate increase would be "a temporary blip upward" that wouldn't have a major impact on the economy.</br></br>A parade of banks boosted their prime rates yesterday following Citibank's and Chase Manhattan Bank's moves late Tuesday afternoon, after the foreign currency futures and bond futures markets closed. The prime rate had stood at 7 1/2% since August.