Treasury and Federal Reserve Foreign Exchange Operations

By Greene, Margaret L.; Scher, Roger M. | Federal Reserve Bulletin, January 1992 | Go to article overview

Treasury and Federal Reserve Foreign Exchange Operations


Greene, Margaret L., Scher, Roger M., Federal Reserve Bulletin


This quarterly report, covering the period August through October 1991, provides information on Treasury and System foreign exchange operations. It was presented by Margaret L. Greene, Senior Vice President of Foreign Exchange at the Federal Reserve Bank of New York. Roger M. Scher was primarily responsible for preparation of the report.(1)

The dollar, having already come down from its post-gulf-war highs before the beginning of August, moved irregularly and moderately lower during the August-October period under review. This development occurred as the recovery of the U. S. economy appeared both slower to emerge and less vigorous than had been anticipated in earlier months. The dollar eased during the three-month period more than 4 percent against the mark, close to 5 percent against the yen, and about 33A percent on a trade-weighted basis? The U.S. monetary authorities did not intervene in the foreign exchange markets during the period.

AUGUST

As the period opened, the dollar was generally trading with a negative bias, weighed down by widening interest rate differentials adverse to the dollar. Previously, market participants had expected that the United States would emerge quickly out of recession at a time when some other economies might be slowing and that the large interest rate differentials providing a disincentive to investment in dollar-denominated assets would thereby be eliminated. But U. S. data released around the beginning of August caused a reappraisal of this view, raising questions about the vigor of the U.S. economy and renewing talk of further declines in U.S. interest rates. At the same time, the Japanese authorities were trying to dampen expectations that a reduction of the Bank of Japan's official discount rate in early July would quickly be followed by another such move. In Germany, new data revealing rising inflation encouraged expectations that the Bundesbank would raise official interest rates to contain inflationary pressures before the start of important labor negotiations for the coming year.

Against this background, the dollar showed some vulnerability to selling pressure in early August, particularly against the mark. Publication of a weak July nonfarm payroll employment report, after a succession of other worse-than-expected U.S. statistics, prompted a 2 percent drop in the dollar from its high of DM1.7675 on August 2. Evidence that the Federal Reserve had eased the federal funds rate 25 basis points on August 6 triggered a new round of selling of the dollar against the mark that took the exchange rate briefly below DM1.70 on August 8. But around mid-August, when the Bundesbank announced that it was raising its official Lombard rate less than the market had expected, the dollar almost completely reversed its decline of the previous weeks. Against the yen, the dollar followed a similar pattern, easing from a high of M138 on August 2 to almost 4135 about a week later before retracing some of its decline. But these movements were somewhat more subdued because revelations surrounding scandals in Japan's financial markets were weighing on the Japanese currency.

News early on Monday, August 19, that Soviet President Gorbachev had been removed from office sparked a sudden scramble for dollars. The prospect that the Soviet leader would be replaced by a reactionary government seeking to roll back the reforms that permitted liberalization in Eastern Europe and the unification of Germany inflamed the markets' deepest anxieties about the outlook for Europe, in general, and Germany, in particular. Market participants, seeking safe havens for currency, moved funds out of marks and into other currencies, including the U. S. and Canadian dollars and the Swiss franc-currencies thought to be geographically insulated from whatever potential political disruption and social unrest might ensue. In a matter of hours, the dollar rose 7 pfennigs, or about 4 percent, to touch DM 1.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Treasury and Federal Reserve Foreign Exchange Operations
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.