Newspaper article THE JOURNAL RECORD

Fed Spent $1.4 Billion to Rescue Dollar

Newspaper article THE JOURNAL RECORD

Fed Spent $1.4 Billion to Rescue Dollar

Article excerpt

Associated Press

NEW YORK _ The Federal Reserve spent the equivalent of $1.4 billion in two attempts in March to rescue the U.S. dollar, which was trading at record lows against key currencies, the central bank said Wednesday.

The Fed's foreign exchange desk on March 2 spent German marks to purchase $300 million in dollars and spent Japanese yen to buy an equal amount of dollars.

The following day, the Fed again bought dollars, this time in concert with central banks of thirteen other countries. The Fed spent $450 million against the mark and $370 million against the yen.

In both cases, the Fed tapped its own funds and money in the government's Exchange Stabilization Fund in equal parts to pay for the interventions. The Fund is used primarily for stabilizing the U.S. currency.

The interventions failed to boost the dollar, and it continued to weaken against the German mark and the Japanese yen.

But Fed officials said they achieved part of their mission by purchasing dollars: The interventions sent a message to traders that the U.S. government cares about the dollar's troubles.

"I'm not persuaded that the intervention was entirely unsuccessful, though the dollar did go lower," said Peter R. Fisher, executive vice president at the Federal Reserve Bank of New York and head of the Fed's foreign exchange dealings.

Fisher said at a quarterly briefing on the Fed's currency operations that the dollar's troubles in January and February were twofold. First, the dollar is weakened by fundamental economic factors, namely the government's budget deficit and a low savings rate. Second, market participants in late 1994 were laden with dollars going into the quarter on expectations that the currency would strengthen because U.S. interest rates would continue to rise.

The rate differences between the United States and European countries were expected to attract more foreign investors to dollars. …

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