/www.fxserver.com/ The dollar slumped to a three-year low against the euro yesterday as jittery traders shrugged off reassurance from the White House that it favours a strong currency.
Fears about the threat of war against Iraq prompted a flight into gold which rose to a 5-year high of $341.70 an ounce at one point before trimming some of its gains in later trading.
The greenback has been under pressure since the start of the week after the US and Britain expressed dissatisfaction with Iraq's dossier disclosing its weapons of mass destruction.
"There is a lot of year-end pressure on the dollar, crystallized by the ratcheting of tension in Iraq and the fact that the arms inspections have not diminished the possibility in the short-run for military action," said John McCarthy, director of foreign exchange at ING Barings Capital Markets in New York.
In early trading the dollar fell 1% against the euro to $1.0333, though the run was stemmed later in the day when White House spokesman Ari Fleischer repeated Washington's commitment to a strong currency. "The position of the administration on the dollar is unchanged. The administration supports a strong dollar. And growth is one of the best policies to help create a strong dollar."
Dealers said gold, which has been pushed up by the dollar's fall, could exceed yesterday's highs. "The issue is whether the big funds come in again. If we see another wave of buying, it will easily go through," one said.
Gold prices have risen $87 since the market bottomed early last year at $253 an ounce. They have gained $26, or 8% this month, spurred by tension from the Middle East to Kashmir and a fall in global equity markets as well as the dollar.