Mark Gains Against Dollar, Yen On Doubts of German Rate Boost
May 04, 2011
NEW YORK -- The mark gained against the dollar, the yen and most other major currencies Wednesday in nervous global trading, as dealers, in an about-face, began doubting German rates will fall Thursday. Mark-buying for yen helped boost the dollar against its Japanese counterpart. The mark strengthened almost across the board Wednesday on the bullish results of the Munich-based Ifo economic research institute's business-confidence survey. Market sentiment about whether the Bundesbank will lower the securities repurchase, or repo, rate Thursday has oscillated wildly all week. Ifo said its monthly economic-climate indicator, which tracks confidence in the manufacturing, construction and wholesaling sectors, was 94.1 in July, up from 90.4 in June. After the survey appeared, traders were more inclined to think the Bundesbank will hold the repo rate at 3.3% -- reversing their views of just the day before. Tuesday's news that German M3 money-supply growth, the central bank's preferred inflation measure, has slowed to near the official target, had many market-watchers swearing that at Thursday's policy-making session, the Bundesbank would cut the repo rate, at which the central bank does most of its lending to banks. Late Wednesday in New York, the dollar was at 1.4826 marks, down from 1.4886 marks late Tuesday in New York. The U.S. currency also was at 108.45 yen, up from 108.40 yen. Sterling rose to $1.5508 from $1.5480. Early Thursday in Tokyo, the dollar was trading at 1.4835 marks and at 108.33 yen; sterling was at $1.5505. The repo rate has been fixed at its current level since February. Lower rates tend to weaken a currency as they make bank deposits and other interest-bearing assets less attractive to investors. ``As of last Friday, most of the market was convinced that the Bundesbank might cut the repo rate (Thursday), and the money-supply numbers reinforced that feeling,'' said Michaele Puma, portfolio manager of Mainstay International Mutual Funds in New York. ``But the Ifo numbers moved (market sentiment) the other way'' -- many now think the Bundesbank may drag its heels a little bit on lowering interest rates. Regardless of what the Bundesbank does Thursday, many market-watchers say the dollar and mark's reactions to the news will be limited and short-lived. ``Even if the Bundesbank doesn't cut the repo by 0.5-0.10 percentage point, it won't have that much of an impact on the market, unless it is followed by statements that the Bundesbank may cut further. Then that may be of some significance,'' said Billy Beryl, a vice president, foreign exchange, at Mellon Bank in Pittsburgh. Traders said the mark's strength was particularly pronounced against the yen on reports that a Japanese financial institution has gone bankrupt. That helped reinforce the view that Japan's economy is still vulnerable. At the close of global trading, the mark was quoted at 73.15 yen, up from 72.82 yen late Tuesday. Against other European currencies, the mark fetched 3.4207 French francs, up from 3.4159 francs, and 1023.54 lire, up from 1020.42 lire.
