Forex - Dollar steady ahead of Q4 GDP figures

February 28, 2008: 08:11 AM EST

The dollar remained close to its all-time low against the euro but was trading in a narrow range ahead of US fourth quarter GDP figures.

The dollar has been in the doldrums this week following a series of weak US data and a downbeat assessment of the economy's prospects from Federal Reserve chairman Ben Bernanke yesterday. This all combined to reinforce expectations that US interest rates will be cut by 50 basis points at the Fed's next monetary policy meeting in March, sending the euro to an all-time high yesterday afternoon of 1.5143 usd.

The US economic outlook has been bleak for some time, but a reasonable week for equity markets coupled with firmer-than-expected euro zone data meant the greenback hasn't benefited from the safe-haven flows seen in recent weeks when equity market turmoil and fears of a global economic slowdown prompted investors to switch out of risky assets and into dollars.

'Although the growth outlook remains challenging globally and equity markets are well off their highs from the third quarter of last year, a substantial easing in market tension and more orderly corrections is contributing to better growth sentiment,' said Geoffrey Yu, currency strategist at UBS. (NYSE:UBS)

This afternoon sees the release of fourth quarter US GDP figures which analysts expected to show a 0.7 pct quarter-on-quarter rise. Ahead of this comes the weekly jobless claims numbers, with the number of people filing for unemployment insurance for the first time expected last week to edge up to 350,000 from 349,000 a week earlier.

'With sentiment becoming increasingly pessimistic as to the outlook for the US economy, it seems as if it will take a notable shift in sentiment if we're to see any real recovery for the USD so expect today's GDP and claims readings to be under some scrutiny,' said Gary Thomson, head of sales trading at CMC Markets.

Gold futures continue to surge, up more than 1%

Metal earlier touches new record high of $967.70 an ounce
4:24 p.m. EST Feb. 27, 2008

Gold for April delivery rose $12.10, or 1.3%, to end at $961.0 an ounce on the New York Mercantile Exchange. Earlier, the contract hit a record $967.70 an ounce.

"We're definitely seeing the rally spurred by dollar weakness and a continued strong bid into all things commodity," said Zachary Oxman, senior trader at Wisdom Financial.

"Funds and speculators alike seem to be scrambling to get long commodities, gold especially," Oxman said.

Weakness in the U.S. dollar boosted gold's investment appeal. Gold, like many commodities, is denominated in dollars, and a lower U.S. currency makes it more affordable in other currencies.

The dollar was battered across the board, falling to a new record low of $1.5133 against the euro after downbeat durable-goods data and hints from U.S. Federal Reserve Chairman Ben Bernanke that more interest rate cuts are on the way. See Currencies.

The Commerce Department said new orders for durable goods fell 5.3% in January after a burst of orders in December, another sign that the economy is slowing. Economists surveyed by MarketWatch had anticipated a 5.1% drop. See Economic. Report.

After the data, Bernanke told Congress Wednesday that the central bank will remain on the course for additional rate cuts at least in the near term, and that downside risks to growth remain the key focus of monetary policy. See The Fed.

"Today's record lows in the U.S. dollar, record highs in gold and record highs on oil mark a key tipping point in currency markets, as traders further downgrade the U.S. currency to a low-yielding asset," said Ashraf Laidi, chief foreign-exchange strategist at CMC Markets US, in a note.

"The greenback is being damaged across the board on the notion that the ultra-low interest rates at the expense of escalating inflation is the only way forward to prevent further spreading of the U.S. recession," Laidi said.

On Tuesday, gold futures gained $8.40. Gold futures fell Monday after a senior Treasury official said the U.S. supports the proposed sale of part of the gold reserves held by the IMF.