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Budget deal prompts support for dollar

By Ron Scherer / December 23, 1987



New York

Will the budget deal help stabilize the dollar? Treasury Secretary James Baker III and other central bankers hope so. Yesterday, in fact, they reaffirmed their commitment to a stable dollar.

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In a joint communiqu'e, they praised President Reagan for raising some new tax revenues and cutting spending. They also underlined West German and Japanese efforts to stimulate their economies.

``They patted each other on the back for efforts to improve the international fundamentals,'' says Brian Fabbri, an economist with Thomson McKinnon Securities, Inc.

Some economists, however, are skeptical that such a vague communiqu'e will arrest the dollar's fall against the deutsche mark, Japanese yen, and other currencies.

``This is a motherhood kind of statement,'' says Charles Taylor, an international economist at Prudential-Bache Securities. ``It's not the kind of thing you bet your last D-mark on.'' Adds Mr. Fabbri, ``I think it has a hollow ring.''

Prior to the announcement there was little reaction on international currency markets, which are usually quiet at year-end. In New York, the yen was quoted at 126.58 to the dollar, and the mark was 1.6285 to the dollar.

It is unclear whether the joint communiqu'e will preclude a January meeting of finance ministers for the so-called Group of Seven. The G-7 is composed of the US, Japan, West Germany, France, Italy, Canada, and Britain.

``The Germans and Japanese are not sure why there should be a meeting unless something concrete comes out of it,'' says Georges Rocourt, chief economist for Mercantile-Safe Deposit & Trust Company in Baltimore.

They would like the US to raise its interest rates, which would tend to strengthen the dollar. But since the stock market tumble of Oct. 19, the US has been unwilling to raise interest rates.

Last February, in Paris, these countries issued a statement, called the Louvre accord, which said the dollar had fallen far enough.

The dollar stabilized for seven months before falling sharply in October. Since then, there has been little coordinated action to stem its fall.