Euro moves to 16-month high against US dollar

THE EURO strengthened toward a 16-month high against the dollar yesterday after a report showed French business confidence was at a three-year high.

The dollar headed for a weekly decline against all its 16 major counterparts as traders reduced bets the Federal Reserve will increase interest rates this year.

“The euro zone’s recovery looks solid,” said Hitoshi Asaoka, senior strategist in Tokyo at Mizuho Trust and Banking, a unit of Japan’s second largest bank.

“As long as inflation is on the upside, market expectations for European Central Bank rate hikes will likely persist, which is euro- supportive,” he said.

The euro climbed to a high of $1.4588 in London from $1.4552 on Thursday, when it rose to $1.4649, the highest level since December 2009.

Meanwhile, spot gold surged to a lifetime nominal high yesterday in thin holiday trade.

It hit a record for a sixth consecutive session on a weak dollar with factors ranging from geopolitical uncertainty to concerns over inflation.

Silver also raced to its loftiest in 31 years, notching the milestone for a seventh straight day and outstripping gold’s weekly gains by a huge margin.

The ongoing euro zone sovereign debt crisis, unrest in the Middle East and North Africa, rising global inflation, and most recently worries over the fiscal stability of the US have fuelled the record-breaking rally in these precious metals.

Spot gold rose to a record of $1,512.50 an ounce, before easing to $1,507.69, on track for a weekly gain of 1.5 per cent – its sixth consecutive week of gains.

Spot silver hit $46.69 an ounce, its highest since 1980, on course for a weekly rise of 8.4 per cent, its biggest weekly increase in two months.

Silver has gained 51 per cent so far this year, and gold has gained 6 per cent.

This compares with a corresponding 1 per cent rise in the London Metal Exchange price of copper, the bellwether of the industrial metals complex.

Supporting precious metals, the dollar was languishing near a three-year low against a basket of currencies, and could take a run at the all-time low hit in 2008, pressured by record low interest rates and the crushing weight of the US budget deficit.

As long as the overall environment stays supportive and the dollar remains weak, gold is expected to retain its strength.

Price of bullion is seen to rise to $1,700 an ounce by 2015, analysts polled by Reuters said in a poll.

However, a correction might be on the horizon after the recent rapid ascent, traders and analysts said.

“Gold is likely to consolidate around the $1,500 level next week,” said Li Ning, an analyst at Shanghai CIFCO Futures.

“The angle of the recent rally is very sharp, and we are bound to see some correction in the near term.” – (Bloomberg, Reuters)