LONDON (AFP) — The dollar plunged Tuesday to a new all-time low against the euro on fears for the future of the US financial sector, while gold hit 820 dollars an ounce, its highest reading since 1980.
In early deals, the single European currency surged to an historic 1.4543 dollars. It later traded at 1.4538 dollars, which compared with 1.4464 in New York late on Monday.
The price of gold rose to 820 dollars an ounce on Tuesday, its highest level since 1980, as the precious metal was lifted by the weak dollar and fears of inflation spurred by record high crude oil prices.
Gold is seen as a good store of value amid inflation.
Traders said the US unit came under heavy selling pressure by investors worried that US housing market weakness will eventually dampen consumer spending and cause a slowdown in the world's largest economy.
The banking sector has been particularly hard hit, with Citigroup, the largest US bank, announcing huge losses stemming from a meltdown in the US high-risk -- or subprime -- mortgage market.
"The big imponderable remains the extent and valuation of subprime related losses and its impact on the economy," said Calyon analyst Mitul Kotecha.
He added: "The fact that these concerns have originated in the US, following announcements of losses at US banks, has meant that the US dollar has failed to benefit from safe haven buying."
The dollar is usually regarded as a refuge in times of economic instability.
According to Derek Halpenny, senior currency economist at The Bank of Tokyo-Mitsubishi, the US subprime issue will continue to hamper the US currency.
"Uncertainty over the extent of losses on mortgage-related securities will continue for some time," Halpenny warned.
The dollar has also been hurt by what are seen as contrasting trends in the United States, where the Federal Reserve has been lowering interest rates, and in the eurozone, where the European Central Bank is seen as favoring tighter monetary policy.
Markets were set to pay close attention to remarks from US Federal Reserve Chairman Ben Bernanke to Congress on Thursday after fresh worries about the impact of the US mortgage and credit woes rattled stock markets last week.
The Fed last week cut its benchmark lending rate by 25 basis points to 4.5 percent to try to cushion the economy from a housing slump, following a hefty 50-basis-point reduction in September.
Investors were also looking ahead to interest rate decisions by the European Central Bank and the Bank of England on Thursday, although neither was expected to make any change given ongoing volatility in financial markets.
In European trade on Tuesday, the euro changed hands at 1.4538 dollars, against 1.4464 dollars late Monday, at 166.62 yen (165.60), 0.6970 pounds (0.6952) and 1.6654 Swiss francs (1.6688).
The dollar stood at 114.75 yen (114.49) and 1.1471 Swiss francs (1.1537).
The pound was at 2.0841 dollars (2.0799).
In London, the price of gold leapt to 818.72 dollars per ounce at the morning fixing from 804.75 dollars late on Monday.
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