WASHINGTON -- The Federal Reserve stepped in to prop up the dollar on international currency markets yesterday, in a partly successful effort to halt the dollar's monthlong slide against the Japanese yen and the German mark.
The dollar touched a record low of 94.90 yen yesterday before the Fed began spending foreign currencies to buy dollars on currency markets in the afternoon.
Traders and analysts, seeking to explain yesterday's sharp drop, cited rumors about the investment policies of a Japanese savings institution, large "sell" orders by an unidentified large bank and comments by a senior Fed official, Lawrence Lindsey.
Mr. Lindsey told Jiji Press, a Japanese news agency, in an interview late Wednesday afternoon that he did not believe the dollar had fallen to crucial levels against the yen. News agencies began reporting on the interview early yesterday morning.
Some traders interpreted Mr. Lindsey's comment as a crucial signal that the Fed would not intervene to support the dollar. But other traders dismissed the impact of the remark, noting that it came many hours before the dollar began to sink quickly.
The dollar partly recovered when the Fed began buying dollars, but then it drifted lower again. In late afternoon trading in New York, it stood at 95.22 yen, down from 96.76 yen on Wednesday.
The dollar also fell against the mark, to 1.4435 marks from 1.4622 marks.
David DeRosa, director of foreign exchange trading in New York for Swiss Bank Corp., said the dollar remained weak after the intervention by the Fed. "It still doesn't look so good," he said.
Currency traders said the intervention was conducted on a fairly modest scale by the Fed's standards, with one currency dealer estimating that the Fed bought $250 million to $300 million of dollars.
The dealer, who insisted on anonymity, said that with the possible exception of the Bank of Japan, foreign central banks did not participate in the intervention yesterday.
Some analysts said the broader trend of a falling dollar reflected a growing view among investors that the Fed would not raise interest rates again soon as the U.S. economy slowed. That has made the higher interest rates in Europe seem more attractive.