European Stars and Stripes (Newspaper) - December 22, 1985, Darmstadt, Hesse                                " i Dollar kept Public guessing throughout 85 by Bob hover staff writer Arneri n i "1 i " inc i b . Dollar Kep american Consumers in Europe on their toes in 1 985 Riv Jar of pm Money Radil ? the Dollar a sled Roll Bamst a maj01 the end in b sep of Low i Plosive gains thai " februa7 and Mach � i s highest a 12 years of floating sunday december 22, 1985 the stars and stripes Page 9 1985 Dollar Mark Exchange rate Mark 3.50 Ting currency rates. At its Peak the Dollar set All time records against some currencies and Rose to its highest level against in German Mark since August 1911. But the euphoria was Over in a Mailer of weeks in volatile heavy volume trading the Dollar has beat a steady Retreat during the past six months. Exchange experts say much of the loss was due to Maricl reaction loan overvalued Dollar. Since septem Ber Central Banks have helped drive the Dollar still lower by Selling More than is billion in an Effort to bring Exchange rates in line with world economic conditions. The decline in i9s5 is the first year since 1980 thai the Dollar has failed to gain. In that turn around year of 1980, the Dollar ended a six year decline that began when it was cast free to float against other currencies. From the 1985 High in february of 3.47 Marks the fix rate which is two pfennig above the military banking Rale the Dollar slumped to 2.50 Marks this month. The loss of 97 pfennig or 28 percent was the largest annual drop against the Mark since 1973, the year the float began. Similar 1985 losses were recorded against other currencies 29 percent against the Swiss franc 28 percent against the French franc and 21 percent against the italian lira. From a High of $1.05 to the English Pound in february the Dollar fell to s 1 .49 to the Pound earlier this month. A 1 985 draws to a close the Dollar appears to be Mark ing time with banking experts and economists nervously hoping for a stabilization at Cui Reni Exchange rates. For americans living abroad Dollar losses have meant higher costs for goods and services purchased on local markets. I bought a new Mercedes when the Dollar was 3.14 Mark and ordered a second one for delivery in april. But i had to cancel the second car because i can t afford a Mercedes at the 2.50 Exchange rate one disgruntled buyer said. The High Dollar sure was Nice while i lasted. We bought fond and clothing on the Economy and did lots of travelling said air Force tech. Sgt. Sylvester Mcmil Lan of the 26th trans so Wei Bruecken. The drop of the Dollar has l Hurt us As much As those who must make rental and car payments in  said Sec. Leonard Falcon 521st main co Frankfurt. We live in government housing and we brought our Van with us from the stale. I be had two previous Tours in Germany and i be seen the Dollar a lot lower. I can live with the 2.50-Mark Exchange  for americans at Home the weaker Dollar is desirable because it makes  goods and agricultural products More competitive in world markets. It is expected to increase american Export and create new jobs. A spokesman for the Bundesbank Germany s equivalent of the is. Federal Reserve called the 2.50 Mark rate  i think German exporters and tourist operators will still make Money at this rate. Al the same time the Rale should provide a lift for .  officials at Germany i Commer Bank predict increasing German Export to the United states in 1986, despite the lower Dollar. They said exporter can do without the Windfall prof its reaped earlier in the year from the 3-Mark Dollar. 2.00 when the Dollar climbed from 3.17 to 3,47 Marks in february a spurt of 9.5 percent in three weeks Money experts warned the surge on speculation. On both sides of the Atlantic economists urged a shift in monetary and fiscal policies to Cool off the Market and gradually reduce the Price of the Dollar. With the Dollar trading at 3.20 Marks former West German Chancellor Helmut Schmidt an economist said there was a need to lower the Dollar Exchange Rale by Quarter to a third. Schmidt said the High Dollar was distorting world Trade patterns by making imports from Japan and Western Europe artificially inexpensive to american buyers a Condi Tion that was leading to huge u a. Trade deficits. With Schmidt and others pointing to the speculative nature of Exchange markets the Dollar began to Cool off. From the Hirlu of february and March the Dollar drifted downward through the Spring and summer to reach a Low of 2.73 Marks in August. Bui by late August and Early september it was on the rebound reaching 2.97 Marks a Rise that led the United Stales. Japan. Germany. Britain and France to intervene against the Dollar. Plans worked out at a meeting of finance ministers of the five nations had an immediate Impact on Exchange markets. On sept. 23, the Firat trading Day after the meeting the Dollar plunged 16 pfennig the largest single Day drop since adoption of floating Exchange rates. Since september the strength of the Dollar has continued to erode with european american and japanese Banks Selling dollars to Hammer the Rales still lower. But Exchange markets Nave been quieter in recent weeks. While pointing to the risk of forecasting the Bundesbank spokesman regards the quieter Market As an indication Exchange rates May stabilize at or near current Levels. Some commercial Bankers Are of the opinion the Dollar will Drift lower the spokesman said. This opinion is based on the expected lowering of . Interest rates. Bin others predict the Dollar will remain firm and perhaps move up if . Inter Cal Rales Are forced higher next year As the government goes in the Market to finance the Federal  a Grimmer Prospect is forecast by Stephen Marris an economist at the Institute of International economics in Washington. He fears the Dollar May fall Well below 2 Marks by the end of the decade in reaction to massive . Balance of payments deficits. Marris expects the crunch to come when foreigners become concerned with those deficits and begin with drawing investments from the United states. Bankers and economists agree that interest rates exer Cise a dominant influence on Exchange rates. The Bundesbank spokesman cited the importance of lower interest Rales in Cooling off the Dollar. If you compare the $11 billion sold in intervention since september to the $150 billion traded daily on Exchange markets the intervention was not thai Large. The other Factor thai drove the Dollar Down was lower .interest  us. Interest rates in recent years have remained relatively higher than foreign rates. The higher Rales have attracted foreign capital 1100 billion in 1984 10 help underwrite . Debt. Predicting the Dollar is impossible one Market watcher said. The Dollar defies the Best guesses of the so called experts because it has become a commodity that has a value of its own apart from its Exchange function he said with billions of dollars trading hands daily it s really impossible to predict the future course of the  experts disagree on forecast for 1986 interest rates with interest Rales edging Down through 1985. Many forecaster an of Fly 8 continuation of the trend m 1986. Olsen expect slight to modest Rale increases at least in the Short term. Joseph 0. Carson senior economist for Merrill Lynch economics predicts an 8.25 on Jav Treasury Bill rate in the fourth Quarter of 1986, up from 6.75 percent for the fint Quarter. Arnold x. Moskowitz of Dean Witter Reynolds inc. Projects an 8.40 rate on 90 Day Bills in the fourth Quarter. Investment adviser Thomas Holt often a Maverick in financial forecasting anticipates modest increase in both Short term and Long term Rales. Most advisers agree that falling rates tend to stimulate borrowing and rising Rale encourage saving. Historically Slock Price have climbed on declining Rales and slumped on rising Rales. The direction of rates becomes important when contemplating Long term investments. If Rales arc trending lower it May be prof Itable to lock in attractive Long term rates. But if Rales appear ready to turn up it May be Wise to invest in the Short term. While inter Cal rates have declined sharply since the Early 1980s when Money Market funds. A saying in excess of 16 percent they remain attractive especially when com pared with the 4 percent inflation. The current Gap Between inflation and the yield on Long term Bonds is wider than it was when the economic recovery began in 1982. That Means the real return on investment the interest received minus inflation a higher than it was when interest rates were double current figures. Bob hover