Dollar and sterling come under attack

The mark rose to new 1995 highs against other European currencies and the dollar weakened across the board yesterday, writes Diane Coyle. Dealers said the assault on the dollar and other currencies in favour of the mark would resume with new vigour when the US market reopened after yesterday's public holiday.

The markets will test whether they can goad the US Federal Reserve and other central banks into co-ordinated intervention to prop up the dollar.

So far only the Bank of Japan has stepped in to buy the US currency, which fell from Y97.50 to Y97.15 - not far above its all-time low of Y96.60.

The last attempt at co-ordinated intervention took place last June, and the Federal Reserve tried again to support the dollar in November when it fell below DM1.50 and Y97

The results from the local election in Hesse, which marked a success for the German government's coalition partner, was yesterday's excuse in the foreign exchange markets for favouring the German currency. It rose 1.5 pfennigs to DM1.4733 against the dollar.

The British Government's various political troubles, including news of the death of Conservative MP Sir Nicholas Fairbairn, have put the pound firmly out of favour. It fell on opening from its previous close of DM2.3466 to trade just above DM2.33 throughout the day.

Political uncertainty was also the explanation for weakness of the French franc, while the Italian lira is vulnerable because of Italy's unstable politics and unstable government finances.

Hamish McRae, page 26