NEW YORK: The US dollar sagged to a three-year low against major currencies on Thursday and gold surged to a new high as investors flocked to investments that are less reliant on the US economy.
The negative sentiment on the dollar intensified this week on signs of a slowing US economy and Standard & Poor's warning on Monday that it might take away the United States' coveted AAA credit rating within two years if Washington fails to achieve a plan to slash its $14 trillion debt load.
The dollar has already been bogged down by the Federal Reserve's near-zero interest rate policy and overseas central banks' ongoing diversification from the US currency.
"If you look at all these big picture things, there's no reason to buy dollars right now," said Ronald Simpson, director of currency research at Action Economics in Tampa, Florida.
Upbeat US and European corporate earnings propelled world stocks to a 33-month high. Several US bellwether stocks jumped after strong earnings but many of those companies have significant sales outside the United States, which is showing signs of slowing again due to weak job growth and rising oil prices.
"The stock market is still focused on the strong corporate earnings," said Randy Billhardt, head of institutional sales and trading MLV & Co. in New York. "It has been able to shrug off a lot of bad news."
Emboldened investors are now piling back into riskier assets, though some analysts advised caution as worries about the euro zone debt crisis and problems in the supply chain following the Japanese earthquake stayed in the background.
Expectations the Federal Reserve will keep US interest rates at near zero for the foreseeable future, even as other major central banks raise rates or are about to tighten, have pressured in the dollar in recent weeks.
With little chance of the Fed raising interest rates this year, the dollar index was down by 0.4 percent to 74.080 after falling to 73.735, its lowest level since August 2008. Light holiday trading volume magnified foreign central banks' gradual reduction of the US dollar from their reserves.
Technical charts suggested the index could move towards a record low of 70.698 hit in 2008.
STOCKS, GOLD SHINE
The weak greenback and inflation concerns raised the appeal of gold. Spot gold reached another record high at $1,508.75 an ounce, while spot silver soared to a 31-year high at $46.24 an ounce.
"People want hard assets and that's what people are comfortable with," MLV's Billhardt said.
In addition to precious metals, investors also channeled funds into stocks.
The MSCI All-Country World Index rose for a third straight day, touching a high of 350.82, a level last seen in July 2008.
Asian shares led the rally, climbing to their highest since January 2008. The MSCI Asia ex-Japan index gained 1.3 percent, while Japan's Nikkei closed up 0.8 percent.
The FTSEurofirst 300 index of top European shares was up 0.5 percent, while Wall Street stocks were 0.4 percent higher.
Oil prices rebounded from earlier losses linked to weak data on US jobs and regional manufacturing. ICE Brent June crude was up 5 cents at $123.93 a barrel.
Thursday's disappointing US economic reports supported Treasury prices and reinforced expectations that the US central bank will pledge to keep interest rates low well into 2012 after its policy meeting next week.
The weaker outlook also reduced investor expectations on US inflation. The five-year breakeven rate, which is the yield gap between five-year Treasury Inflation-Protected Securities and regular five-year government debt, fell to 2.31 percent, down 0.03 percentage point from late Wednesday.