AFTER G-6, ROUND ONE GOES TO CENTRAL BANKS

  Central banks have easily beaten back
  the foreign exchange market's first test of the industrialized
  nations' recent pact to stabilize currencies, analysts said.
      In active trading this week, the market pushed the dollar,
  sterling, the Canadian dollar and Australian dollar higher. But
  operators got their fingers burned as one by one the central
  banks signalled their displeasure.
      "So far G-6 has been a roaring success,"said James O'Neill,
  financial markets economist at Marine Midland Bank NA.
      "The central banks are sending strong signals that they
  won't tolerate any kind of momentum building behind
  currencies," added a senior corporate trader at one U.K. bank.
      On February 22, the finance ministers and central bank
  governors of the U.S., Japan, West Germany, France and the U.K.
  -- the Group of Five -- plus Canada, signed an accord under
  which they agreed to cooperate closely to foster stability of
  exchange rates around prevailing levels.
      The agreement was viewed by many in the market as an
  attempt to put a floor under the dollar after its sizeable
  two-year decline against major world currencies.
      And initially, traders indicated their respect for the
  accord by refraining from pushing the dollar lower.
      But by Wednesday, the dollar climbed to more than 1.87
  marks, about five pfennigs above its levels the Friday before
  the G-6 accord.
      The move was aided by indications that the U.S. economy
  picked up steam in February at the same time as the West German
  economy was regressing.
      But dealers said the Federal Reserve Bank of New York gave
  traders a sharp reminder that the G-6 pact had encompassed the
  idea of limiting inordinate dollar gains as well as declines.
      Dealers differed as to whether the U.S. central bank
  actually intervened to sell dollars above 1.87 marks, or simply
  telephoned dealers to ask for quotes and enquire about trading
  conditions.
      But the dollar quickly backed off. It hovered today around
  1.85 marks. "The market was surprised that the Fed showed its
  face so soon," said Marine Midland NA's O'Neill.
      Also on Wednesday, London dealers said the Bank of England
  intervened in the open market to sell sterling as the U.K.
  currency rose to 1.60 dlrs compared with 1.5355 dlrs before the
  G-6 pact.
      Sterling, along with the other high-yield currencies like
  the Australian dollar and Canadian dollar, was in favor after
  traders surmised that the the chance of intervention pursuant
  to the Paris currency accord left limited room for profit plays
  on dollar/mark and dollar/yen.
      The pound also was boosted by suggestions of an improving
  U.K. economy, anticipation of a popular British budget on March
  17 and public opinion polls showing good chances for the
  incumbent Conservative party in any general election.
      "There was a real run on sterling," said Anne Mills of
  Shearson Lehman Brothers Inc.
      Sterling traded today around 1.5750 dlrs, down from 1.5870
  dlrs last night. It slid to 2.917 marks from 2.950 yesterday
  and from a peak of about 2.98 recently. "There's been some
  heavy profit-taking on sterling/mark ahead of next Tuesday's
  U.K. budget," said James McGroarty of Discount Corp.
      As speculators detected the presence of the U.S. and
  British central banks, they acclerated their shift into
  Canadian and Australian dollars. But here too they were
  stymied. The Bank of Canada acted to slow its currency's rise.
      The Canadian dollar traded at 1.3218/23 per U.S. dollar
  today, down from 1.3185/90 yesterday.
      And the Australian Reserve Bank, using the Fed as agent,
  sold Australian dollars in the U.S. yesterday, dealers said.
      The Australian dollar fell to a low of 67.45/55 U.S. cents
  today from a high of 69.02 Thursday.
      Analysts said the central banks' moves to stifle sudden
  upward movement, leave the market uncertain about its next
  step. Today, the focus shifted to the yen which has held to a
  very tight range against the dollar for several months.
      The dollar fell to 152.35/40 yen from 153.35/40 last night.
  Analysts said the yen also gained as traders unwound long
  sterling/short mark positions established lately.
      "Because of the change in perceptions about the health of
  the German economy, the funds from those unwinding operations
  are ending up in yen," a dealer at one U.K. bank said.
      Recent West German data have shown falling industry orders,
  lower industrial output and slowing employment gains.
      Moreover, the yen is benefitting as Japanese entities who
  have invested heavily overseas, for example in Australian
  financial instruments, repatriate their profits ahead of the
  end of the Japanese fiscal year on March 31.
      Noting that the dollar/yen rate is in a sense the most
  controversial one because of the large U.S. trade deficit with
  Japan, analysts said the stage could be set for another test of
  the dollar's downward scope against the Japanese currency.
      In its latest review of the foreign exchange market through
  the end of January, the Federal Reserve revealed that it
  intervened to protect the dollar against the yen on January 28.
  On that day, the dollar fell as low as 150.40 yen.
      "Sure, the Fed bought dollars near the 150 yen level in
  January. But the market has to bear in mind that time marches
  on and the situation changes," said McGroarty of Discount.
  

