Treasury and Federal Reserve Foreign Exchange Operations

Cross, Sam Y., Rude, Christopher, Federal Reserve Bulletin

Treasury and Federal Reserve Foreign Exchange Operations

This quarterly report, covering the period November 1988 through January 1989, provides information on Treasury and System foreign exchange operations. It was presented by Sam Y. Cross, Manager of foreign Operations of the system Open Market Account and Executive Vice President in charge of the Foreign Group of the Federal Reserve Bank of New york. Christopher Rude was primarily responsible for preparation of the report.(1)

The dollar moved lower in November, continuing the decline against most major currencies that had begun in late September. The dollar then gradually found support at the end of November and recovered through most of December and January to return to levels that had prevailed in the autumn. The U.S. monetary authorities intervened to resist the dollar's decline in November and early December and to resist the dollar's rise in January.

The reversal of the dollar's downward momentum during the period reflected shifts in the market's assessment of the strength of the U.S. economy, of the prospects for exchange rate and monetary policies in the United States and elsewhere, and of the effectiveness of the U.S. administration in dealing promptly with pressing economic issues.

THE DOLLAR'S DECLINE IN NOVEMBER

When the three-month period opened in November, market sentiment toward the dollar was decidedly negative. With statistics released in October suggesting that U.S. economic expansion might be moderating, market participants assumed that U.S. monetary policy would not be tightened further. They expected that the interest differentials that had attracted inflows into dollar-denominated assets might not continue to be so favorable. Moreover, concerns about the pace of international adjustment had been aroused by recent trade figures. Not only had the trade surpluses of Germany and Japan showed renewed strength, but also the U.S. trade figures released in mid-October showed that the U.S. trade deficit had widened in August. Market participants began to doubt that the substantial trade …

Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Treasury and Federal Reserve Foreign Exchange Operations. Contributors: Cross, Sam Y. - Author, Rude, Christopher - Author. Journal title: Federal Reserve Bulletin. Volume: 75. Issue: 4 Publication date: April 1989. Page number: 259+. © 1999 Board of Governors of the Federal Reserve System. COPYRIGHT 1989 Gale Group.

This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.