Dollar Declines In Face of Lower Interest Rates
The U.S. dollar declined against major foreign currencies yesterday because of lower U.S. interest rates, which make dollar-denominated investments less attractive, and a larger-than-expected decline of 0.9% in U.S. July retail sales.</br></br>The foreign-exchange market had expected July retail sales to advance by about 0.3%, said Gil Leiendecker Jr., a vice president and manager of the foreign-exchange department of Salomon Brothers Inc., New York. The drop indicated the U.S. economy is slowing faster than expected.</br></br>Gold rose $4.20 an ounce in response to the decline of the dollar and U.S. interest rates, which make gold purchases easier to finance.</br></br>Jordan Black, an assistant treasurer of Chase Manhattan Bank, New York, said the feeling that U.S. interest rates might continue to ease also hurt the dollar. "But people are hesitant to sell too many dollars," he added, "in the belief that the Federal Reserve may have to tighten credit conditions in the period just after the U.S. election." Any tightening could lead to higher U.S. interest rates.</br></br>Peter Rogers, an assistant vice president and assistant chief foreign-exchange dealer of Manufacturers Hanover Trust Co., New York, said that "if we don't see a strong rise in the U.S. industrial production number (to be released today), there could be a substantial correction in the dollar." The market curently expects U.S. July industrial production to climb by about 0.7%. "My feeling," he said, "is that short-term sentiment about the strength of the dollar has changed."