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Dollar Rises on Yeltsin Health, Expectation of German Rate Cut

July 11, 1995

NEW YORK (AP) _ The dollar advanced sharply Tuesday, buoyed by fears of Boris Yeltsin’s failing health and speculation of a looming interest rate cut in Germany.

The dollar got its initial boost during the European and U.S. trading day with the news that the Russian president had been hospitalized with acute heart trouble.

That called into question Russia’s political as well as economic stability and sent investors into dollar-denominated assets, invigorating demand for dollars.

The migration particularly affected the German mark because Germany’s economy, the biggest in Europe, is particularly susceptible to sudden shifts in Russia.

``Occasionally, this dollar safe haven roll comes into play. It used to happen more often,″ said Carol A. Stone, a senior economist at Nomura Securities International in New York.

The dollar retained much of its strength even after Yeltsin’s doctors said later in the day that his heart problems wouldn’t require surgery and the Russian leader remained active and in control.

In late New York trading, the dollar was quoted at 87.56 yen, up from 86.93 late Monday. The dollar also was changing hands at 1.4060 German marks, up from 1.3953.

The dollar was further helped by optimism that Germany’s Bundesbank might cut interest rates during a regularly scheduled meeting of its policymaking board on Thursday.

The central banks of the United States and Japan eased interest rates last week, giving their German counterpart some leeway to do likewise. Other nations, including France, Denmark and Canada, also have cut their rates recently to stimulate their economies, and Germany has stood alone among the major currencies in not pushing rates downward.

Lower German rates would make marks less attractive in the foreign exchange market and boost demand for dollars.

In one possible sign that the Germans might ease rates, the Bundesbank announced it would hold a news conference after the Thursday meeting. While that doesn’t necessarily mean a rate cut was looming, it set the stage for some possibly important news.

Mark Remigio, a vice president at Mitsubishi Bank Ltd. in New York, said a German rate cut would be consistent with efforts by Japan and the United States to strengthen the dollar, which has fallen substantially below its 1994 levels. Last week, the central banks of Japan and the United States intervened in the market, buying dollars to boost their value.

Other late dollar rates in New York, compared with late Friday: 1.1700 Swiss francs, up from 1.1575; 4.8820 French francs, up from 4.8510; 1,624 Italian lire, up from 1,613, and 1.3536 Canadian dollars, up from 1.3522.

The British pound was quoted at $1.5890, down from $1.5935.

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