950825

Dollar tumbles as

rally on German

rate cut fizzles

NEW YORK: The dollar on Thursday tumbled from a six-month high in the U.S. after a rally on German interest rate cuts gave way to waves of selling.

The failed push to higher levels was seen as a disappointing signal for the dollar, which has been in an uptrend for the past several weeks.

"It's almost frightening," remarked Ed Whitmore, vice president at Standard Chartered Bank. He said the dollar should have been able to sustain the rally, particularly given that the Bundesbank rate cuts were unexpectedly generous.

The dollar ended in the U.S. at 1.4740/45 marks, down from 1.4945/55 marks. It fell to 96.45/55 yen from 96.45/55 yen.

Following its regular biweekly council meeting, the Bundesbank slashed half a point each off of its two official interest rates, the discount rate and the Lombard emergency lending rate. The discount rate was chopped to 3.5 percent and the Lombard rate to 5.5 percent.

Initially, the dollar surged. However, a startingly weak report on American durable goods orders, released shortly after the Bundesbank news, triggered a sell-off just after the dollar hit a six-month high of 1.4990 marks.

The Commerce Department reported that durable goods orders fell 1.7 percent -- surprising many economists who had forecast a 0.8 percent gain in orders for the month.

"The dollar got a rise in the first hour after the Bundesbank move but then, when the durable goods report was released, it dropped like a stone," said Carl Weinberg, chief economist at High Frequency Economics.

Amid the jubilation over the German rate cuts, the durable goods report shifted attention to the Federal Reserve.

"People took this report as a sign that the Fed would be more likely to cut rates," Weinberg said.

"In that sense, it was a negative for the dollar. No one is thinking the Fed is going to cut rates anytime soon, but this would raise the likelihood of a cut down the road," he added.

Stop-loss selling accelerated the dollar's slide in the aftermath of the durable goods report.

Weinberg noted that an important factor helping to support the dollar in the past several weeks was a well-timed currency market intervention undertaken by the United States, Germany and Japan on Aug. 15. A few bouts of joint intervention by the United States and Japan have also played a role.

Weinberg said the dollar's performance Thursday cast some doubt on its ability to rally without intervention.

"It's amazing to me that absent official intervention, the dollar hasn't been able to make any gains against the mark and the yen," Weinberg said. "It leads you to believe there isn't a natural buoyancy there."

Still, many analysts remained optimistic.

"This dollar rally is legitimate and we are ultimately going to go higher," said John Rothfield, international economist at Nationsbanc-CRT.-Reuter