Dollar softens after G20, gold surges

November 10, 2009 01:01:53 PM

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The dollar faced fresh pressure Monday after a Group of 20 statement suggested no coordinated intervention in currency markets, prompting selling of greenbacks and buying of gold.

Gold prices hit a record high of 1,111.20 dollars in London and 1,111.70 in New York.

The euro hovered around the 1.50 dollar level, and at 2200 GMT was quoted at 1.4994 dollars compared to 1.4846 in New York late on Friday.

The dollar meanwhile fetched 89.95 yen from 89.90 yen late on Friday.

Hilary Love at PNC Bank said the market reacted to the G20 finance ministers decision to maintain economic stimulus measures.

"This, combined with no expression of concern about currency levels, was interpreted as a green light to increased risk-taking, triggering dollar sales as assets were directed into higher yield, higher risk currencies," she said.

Much of the dollar selling resulted in a rush into gold.

Gold "established itself above the psychological (1,100-dollar) level this morning as ministers at the weekend G20 meeting pledged to maintain their fiscal stimulus measures," said James Moore, an analyst at TheBullionDesk.com <http://thebulliondesk.com/>.

With the G20 avoiding comment on currencies, "We think this will refocus markets on relative interest rates," said Camilla Sutton at Scotia Capital.

Last week, the US Federal Reserve decided to hold rock-bottom US interest rates for "an extended period" and to keep trillion-dollar stimulus measures in place to support a fragile US recovery from recession.

"Unless there's a turn in US interest rates, gold will be well bid," said Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.

The governments of the world's leading industrial and emerging economies said in a statement over the weekend that "recovery is uneven and remains dependent on policy support" -- a signal that stimulus plans will be kept in place.

The International Monetary Fund also argued that stimulus measures must remain to avoid endangering a "nascent" economic recovery.

The euro is considered a riskier, and therefore more high-yielding, investment on currency markets compared to the "safe-haven" dollar, which is a more popular bet in times of greater economic turbulence.

Gold on Friday reached above 1,100 dollars an ounce for the first time, following news that Sri Lanka had joined India in purchasing gold instead of the US currency and amid growing interest from China.

In late New York trade, the dollar stood at 1.0079 Swiss francs from 1.0171 Friday.

The pound was at 1.6759 dollars after 1.6611.