NY Times article
Excerpt: "In addition, Fand said traders were encouraged by news bulletins
suggesting that a rescue package for Brazil was in the process of
being assembled, and that Congress, after much delay, may be close
to approving an $18 billion increase in funds for the International
Monetary Fund.
"The message has been conveyed that a line has been drawn in the
sand, and that emerging markets will not be allowed to bleed any
more. If Brazil is going to be saved and the IMF is going to get its
funding, the world has to have some renewed confidence that this is
the end of the financial crisis."
Dollar Drops 8% in Day Against Yen; Biggest Fall in 25 Years Linked to Hedge Funds
nytimes.com
October 9, 1998
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By KENNETH N. GILPIN
EW YORK -- Foreign-exchange traders battered the dollar
into what looked like a second consecutive free fall Thursday
before the currency abruptly reversed course, ending only slightly
lower against the Japanese yen in extraordinarily volatile dealings.
On Wednesday, the dollar registered its biggest one-day drop against
the yen in a quarter century, losing more than 8 percent of its value.
There was little movement between the currencies during overnight
trading in Tokyo, but when European markets opened the dollar
again came under attack, plunging as much as 7 percent, to a low of
111.73 yen, a level last seen in early June 1997.
Selling slowed and then turned during the afternoon in New York,
and by late in the day the dollar was quoted at 119.05 yen, down
from 120.25 yen late Wednesday.
"This has been about the craziest day my colleagues and I have ever
seen," said Jeremy Fand, senior foreign exchange strategist at
BankBoston. "But in spite of this we are optimistic, because we seem
to have gotten rid of the speculative excess that was in the system."
As on Wednesday, traders said much of the selling was done by large
speculative hedge funds unwinding positions they had taken based on
a bet that the yen would remain weak. And the impact of those sales
was magnified because trading volume was quite light Thursday, Fand
and others said.
"The market has been very quiet," said Michael Rosenberg, manager
of currency and international fixed-income research at Merrill Lynch
& Co. "There is no liquidity in this market, and no appetite for risk in
this sort of a chaotic situation."
Traders said the dollar's slide slowed and then reversed after the
trading desk at the Federal Reserve Bank of New York began calling
currency dealers to ask about conditions in the market.
The New York Fed, which has operational control of the
government's day-to-day dealings in the foreign exchange market,
makes such calls when conditions appear unsettled. But some traders
interpreted the inquiries as a possible sign that the Fed might be
preparing to buy dollars to send a message that the United States
wants the dollar to stabilize.
In addition, Fand said traders were encouraged by news bulletins
suggesting that a rescue package for Brazil was in the process of
being assembled, and that Congress, after much delay, may be close
to approving an $18 billion increase in funds for the International
Monetary Fund.
Perhaps most important, there was a recognition that the dollar had
fallen much too steeply and much too fast against the yen, especially
considering recent predictions that the dollar could reach 160 yen by
the end of the year.
"Enough is enough," Fand said. "What had happened was an obscene
level of a correction for a two-day period. There are clearly buyers of
dollars with the dollar between 110 yen and 115 yen."
Rosenberg seemed to share the view that the dollar's wild gyrations
against the yen were effectively over. Over the coming weeks and
months, he said he expected the dollar to move higher against the
yen.
"We need to build a base where the dollar trades between 115 yen
and 125 yen," he said. "I think that will be the range for the next few
weeks. After that, we think the dollar will gradually appreciate against
the yen," perhaps to as high as 170.
News that a financial rescue package for Brazil was being assembled
also helped push the dollar up against the German mark and other
major currencies.
Late Thursday, the dollar was trading at 1.6375 German marks, up
from 1.6138 marks on Wednesday.
"Without any doubt, this last week was a turning point for financial
markets," Fand said.
"The message has been conveyed that a line has been drawn in the
sand, and that emerging markets will not be allowed to bleed any
more. If Brazil is going to be saved and the IMF is going to get its
funding, the world has to have some renewed confidence that this is
the end of the financial crisis."
Copyright 1998 The New York Times Company
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