NEW YORK -- The dollar rose yesterday against major currencies, rebounding from a post-World War II low against the yen, amid speculation the U.S. government will buy dollars again after aggressive purchases Monday.
The dollar stabilized Monday after the New York Federal Reserve, the government's agent in the foreign exchange market, paid an estimated $2 billion to $2.5 billion for marks and yen. Many traders said they expect the Fed to be back for more.
"The dollar has benefited from the threat of continued intervention," said John McCarthy, manager of foreign exchange for ING Capital Markets in New York.
After slipping to a postwar low of 85.68 yen in Asian trading, the dollar recovered to 86.15 yen, up from 85.85 yen Monday in New York. The dollar also stood at 1.3785 German marks, up from 1.3723 marks.
The Bank of Japan, which bought dollars alongside the Fed in Asian trading Monday, bought again yesterday, traders said. Japan's central bank has bought dollars repeatedly in recent weeks to try to keep the yen from strengthening. The strong yen hobbles Japan's economy by making its exports more expensive.
Speculation that the dollar may have fallen too far, too fast also helped the currency rebound yesterday, traders said. The decline "has been overdone for a long time," said Richard Vullo, currency sales manager at Bayerische Hypotheken und Wechsel Bank in New York.
With stock and bond markets rallying, the economy growing, and "the only inflation fears coming from the dollar itself, the U.S. should be an attractive place to invest, and the dollar should be doing OK," he said.
The dollar has dropped 13 percent against the yen and 11 percent against the mark since the start of the year, weighed down by the United States' swollen trade deficit and a financial crisis in Mexico, the United States' third-largest trading partner.
Though stronger yesterday, many traders said, the dollar's swoon won't end until the United States takes more drastic steps to slow its decline, such as raising interest rates. Higher interest rates often help a currency by making bank deposits denominated in the currency more attractive.