NEW YORK -- The dollar slid against the Deutschemark yesterday on more bad news from the U.S. housing sector. There was no intervention by central banks to support the U.S. currency.
U.S. housing starts dropped 2.8 percent to a seasonally adjusted annual rate of 1.12 million in July after falling a revised 3.8 percent in June.
That was weaker than the 1.7 percent gain expected by economists and immediately raised concerns that the Federal Reserve might soon pare interest rates by another 25 basis points, traders said.
The large differential between U.S. and German interest rates already has the dollar under fire. "With the large cost of carry, it's very difficult to justify holding dollars," said John Nelson, chief spot dealer at ABN-Amro Bank.
Although a few European investors bought the dollar when it hit 1.4580 marks on the belief that the central banks would come to the currency's rescue, they reversed those trades once the intervention didn't happen, traders said.
The dollar closed at 1.4573 German marks, down from 1.4651 marks Monday.
Bearish sentiment among most investors could push the dollar as low as 1.4510 marks today, and even favorable economic news isn't likely to lift the currency much above 1.4750 marks, traders said.
"In the absence of anything special, the dollar should continue lower," said ABN-Amro's Mr. Nelson. "At this point, the central banks can't hold it up."
Joe Plauche, a currency analyst at Dean Witter Reynolds, agreed. "It's kind of hard to knock the Deutschemark down before the [U.S.] money supply figures on Thursday," he said.
Traders wouldn't rule out another round of Fed buying to prevent the dollar from reaching its all-time low of 1.4440 marks, set in February 1991, particularly while the Republican National Convention was in progress.
In other trading, investors swapped their Japanese yen for dollars after the Nikkei stock index tumbled 620 to 14,309. The misfortunes of Japanese stocks have generated speculation that the Bank of Japan will soon be forced to cut interest rates, traders said.
The dollar inched up to 126.13 yen from 125.79 yen.
Meanwhile, the British pound rose to $1.9306 from $1.9249. The dollar bought 1.3067 Swiss francs by the close, compared with 1.3183, and 4.9460 French francs, compared with 4.9650. The dollar fetched 1.1976 Canadian dollars by the New York close, up from 1.1944.