The US$ rallied yesterday as the Federal Reserve and 11 foreign central banks actively supported the currency in a co-ordinated intervention that caught markets by surprise.
Treasury Secretary Robert Rubin said the intervention was in keeping with ''the exchange rate objectives in the April 25 communique of the G-7.''
Finance ministers and central bankers of the Group of Seven leading industrial nations pledged at their April 25 meeting to co-operate in foreign exchange markets.
At the time, market players were little impressed by the statement. Many doubted that the G-7 nations were committed to the defence of the US$, whose weakness they blamed on ''benign neglect'' by U.S. authorities.
''They made it very clear they are concerned about the rate of the US$,'' said Bill Arnold, a vice-president at Chemical Banking Corp. ''It's too early to tell if the market psychology has really changed. The intervention was of a reasonable amount and it's clear it came as a surprise.''
Traders estimated the size of the intervention, in which the central banks bought US$s, at US$2 billion, half from the Fed alone.
In late New York trading, the US$ was quoted at 1.4140 German marks, up from 1.3895 late Tuesday, and at 84.45 Japanese yen, up from 82.87. The US$ climbed as high as 1.4190 marks and 85.30 yen and gave back little ground in comparison with previous interventions.
Dealers attributed the relative success of the intervention to the fact most investors had low supplies of US$s after the extended Memorial Day weekend.
They also noted that the market was very quiet in early North American trading, when the Fed began buying US$s at 1.3860 marks and 82.75 yen amid talk of a new US$ slide.
Some market participants said the intervention allowed U.S. authorities to show they were not trying to use a low US$ to pressure Japan into opening its markets in the midst of a bitter trade dispute.
The US$ rose to 1.1660 Swiss francs from 1.1445 Swiss francs late Tuesday. The British pound fell to US$1.5895 from US$1.6060 late Tuesday.
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Revised: June 3, 1995
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