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. Last Updated: 07/27/2016

Dollar Plummets Against Yen, Mark

LONDON -- Central banks tried successive rounds of concerted intervention to bolster the U.S. dollar on Friday but even aggressive buying by the U.S. Federal Reserve failed to stop it sliding.


The markets were not impressed, holding the U.S. currency below key levels against the yen and mark.


"I think this is acting as a spur more than anything else," said Tim Fox, currency economist at Credit Suisse on Friday. "It weakened after they started intervening ... as they show their hand the market reads it as weakness and not strength."


"Domestic factors have to change before currencies can. Intervention on the exchange rate will only have a limited impact," he added.


As London markets closed Friday the dollar was at 1.4350 Deutsche marks, a pfennig and a half down on Thursday's 1.4600 close. Its performance against the yen was even more dismal as it continued to make consecutive post-war record lows down to 94.02 yen.


"Commercial banks are very happy to find a counterparty that wants to buy dollars," said one trader.


A total of 15 central banks, led by the Bundesbank, entered the markets in the morning and the Fed took over in the afternoon, followed by Europe, although dealers said the Bank of England was conspicuous by its absence.


Even aggressive dollar buying by the Fed had no impact and most in the market viewed the whole episode as ill-conceived and ill-timed.


Traders said the market was not particularly short of dollars ahead of today's action and the problem was a strong mark rather than a weak dollar.


"I think most people realize that the central banks have screwed it up," said Tony Norfield, Treasury Economist at ABN AMRO. "Their mistake might have been that they didn't do it in a busy enough period. Successful interventions have generally been in good trading hours and been backed up by official statements."


Traders said the problem was that the environment for the dollar was so poor that the slightest thing sent it down. "It could be the peso drops, or a U.S. politician makes a stupid comment, or somebody in Japan says something out of turn," said one trader. "The slightest thing and it's in a bad way."


The morning round of central bank buying was seen as only a token effort and totaled less than $1 billion, according to traders' estimates. But the afternoon Federal Reserve buying was seen as "aggressive."


So having lost today's battle, will the central banks launch another assault next week? Dealers and analysts seem to think so but are extremely doubtful it will have any impact. In the past when intervention has been to no avail, the central banks have let it rest and let the interbank market get short before trying again.