The U.S. dollar declined against the deutsche mark Wednesday, but was little changed against the Japanese yen in a quiet market.
A rise in West German interest rates is considered a foregone conclusion, with the only question how much.Dealers said if the Bundesbank declines to make a change, the dollar will rally to 1.90 deutsche marks today and DM1.92 Friday, and the Bundesbank's costly intervention of the past week and a half will be wasted.
The dollar popped up briefly Wednesday morning. One theory to explain that was Secretary of State James Baker's statement that the United States reserves the right to use military force against Panama's Gen. Manuel Antonio Noriega. A second explanation was that heavy dollar buying emerged from Hanwa, the large Japanese trading house. A third was that morning cross trades (transactions made directly between two foreign currencies and not involving the dollar) of deutsche mark/yen and sterling/deutsche mark were being unwound.
In any event, the dollar fell back, some said on "silent" intervention, and at midday was quietly moving sideways.
''The market is getting comfortable buying dollars on dips," said Steve Flanagan of Manufacturers Hanover Trust Co., "even though it's a good recipe for disaster later on. It's not a smart play. The central banks have been in the market for eight days of intervention."
Wednesday morning, the dollar fell on intervention by the central banks of Japan, West Germany and Britain in the Far East.
In London Wednesday, the dollar drifted in quiet trading and sterling weakened further while market participants braced themselves for a West German interest rate hike after the Bundesbank's policy-making council meeting today.