clarinews@clarinet.com (BRENDAN MURPHY, UPI Business Writer) (01/19/90)
NEW YORK (UPI) -- The dollar moved up sharply in New York trading Thursday on a published report saying two key Federal Reserve governors aren't inclined to ease U.S. interest rates any more for the moment, against a backdrop of market jitters about Soviet inter-ethnic bloodletting. The Wall Street Journal quoted Fed Vice Chairman Manuel Johnson as saying in an interview that economic indicators look better and bond markets are nervous about inflation. The newspaper concluded from the tenor of his remarks that ``he won't support moves to ease short-term rates.'' The shift by Johnson, hitherto an an advocate of Fed easing to stimulate a flagging economy, and similar comments by Fed Governor Wayne Angell, signaled a pause in Fed policy. This immediately bolstered the dollar, which had been weakened by declining U.S. interest rates. The Fed governors' comments came just as confidence in the mark was shaken by the near-civil war raging between Azerbaijanis and Armenians on the southern marches of the Soviet Union. The fighting is seen as a threat to Soviet leader Mikhail Gorbachev, a catalyst of East Bloc reform. Late in the New York session the dollar was quoted at 1.7140 West German marks, up more than two pfennigs from 1.6912 Wednesday. The dollar also gained on the Japanese unit, at 146.40 yen against 145.30. The news caught many foreign exchange players off balance, said chief foreign exchange dealer Clement Cypra of Creditanstalt Bankverein in New York. ``I think we're going to have a shakeout in the market.'' He said the news confirmed a change in dealer sentiment. ``The dollar was like a big ship in the ocean, it was slowly making a turn,'' Cypra said, citing its recent firmness against the mark. ``It's come down a heck of a long way since the beginning of the year and I just personally see no reason to sell the dollar.'' But economist David Jones of the Aubrey G. Lanston & Co. securities house was not so sure, seeing ``only a temporary strengthening of the dollar and setback for the mark.'' A Fed pause and East Bloc setbacks wouldn't negate higher West German interest rates and economic strength, he said. In New York trading the British pound eased to $1.6440 from $1.6490. Other dollar rates: 1.5210 Swiss francs, up from 1.5075; 5.8175 French francs, up from 5.7490; and 1,274 Italian lire, up from 1,259. On European exchanges the dollar also closed higher on the Journal report. The dollar was higher in Frankfurt at 1.7060 German marks against 1.6885 and also went up in Zurich to 1.5155 Swiss francs against 1.5030. In Paris the U.S. currency closed at 5.7800 French francs, up from 5.7625, in Brussels at 35.52 Belgian francs, also ahead from 35.29, and in Milan at 1,266.60 Italian lire, up from 1,262.75. In London the pound declined to $1.6460 against $1.6495 Wednesday. Republic National Bank in New York closed cash gold at $410.25 an ounce, off from $412.25 Wednesday. The New York Commodity Exchange settled gold at $410.20 an ounce, down from $412.50. In Zurich gold rose to $413.50 an ounce from $410.50. London gold moved up to $413 an ounce from $410.25. Republic closed cash silver at $5.22 an ounce, off from $5.265. Comex spot silver moved down to $5.19 an ounce from $5.265. Zurich silver up to $5.30 an ounce from $5.25, and London silver also rose to $5.26 from $5.23.