Dollar sell-off pushes gold to 16-year high

The dollar came within a whisker of its all-time low against the euro last night as mounting concern over the health of the economy and rumours of the death of the Palestinian leader Yasser Arafat triggered a sell-off in the US currency.

The dollar came within a whisker of its all-time low against the euro last night as mounting concern over the health of the economy and rumours of the death of the Palestinian leader Yasser Arafat triggered a sell-off in the US currency.

Widespread selling pushed the dollar to $1.2897, a new eight-month high and close to the record $1.2927 reached in February. The weak dollar and the mounting fears of fresh tension in the Middle East combined to send the price of gold - a traditional safe haven investment in troubled times - to a 16-year high.

But in a confusing day on the markets, the Dow Jones stock index posted its largest one-day rise for 13 months as oil prices fell below $49 a barrel in New York. The good news helped stem the dollar's fall, which traders said was driven by a refocusing of markets' attention on the imbalances of the US economy now that uncertainty over the presidential election had lifted.

"The market got over any relief rally after the election in a hurry and now everyone is back looking at the fundamental picture, namely the current account and fiscal deficits," said Ron Simpson, a global currency analyst at Action Economics.

The dollar's weakness was exacerbated by hawkish comments by Jean-Claude Trichet, the president of the European Central Bank, who said inflation was likely to remain significantly above its 2 per cent target in the coming months.

John Beerling, at Wells Fargo in Minneapolis, said: "I would have to think that Trichet's remarks are contributing factors that will strengthen the euro. I would have to think that would definitely give some support."

The markets are now awaiting key non-farm payrolls data later today that will give the best picture of the ability of the US economy to create jobs last month. Economists forecast an increase of 169,000 jobs in October, compared with a rise of 96,000 in September. However, a weak number could push the dollar through $1.30 to the euro, which would lead to a chorus of complaints from eurozone finance ministers.