LONDON — The dollar held at a five-week low and gold headed for its best month in more than one-and-a-half years on Friday, after a report that the US Federal Reserve would next week underline its intention to keep interest rates low for a long time. Moves by Fed officials to soothe concerns about its stimulus withdrawal plans have seen the dollar tumble in July as financial markets have bounced back strongly from June’s mild bout of panic. Setting the greenback on its latest fall was a Wall Street Journal report that the Fed may debate tweaking its forward guidance message to hammer home its signal that it will not be raising rates soon. Against a basket of currencies it was down 0.4% as midmorning selling pushed it to a fresh five-week low of 81.579, while gold, often viewed as a hedge against Fed money-printing, consolidated its 10% rise in July. The dollar’s slide began on July 10, when minutes of the Fed’s June meeting gave investors second thoughts about when the bank would start reducing stimulus and focus is now on next week’s two-day meeting that ends on Wednesday. "We could see more squaring of long dollar positions (ahead of the Fed meeting) keeping the downward pressure on the dollar," Nordea currency strategist Niels Christensen said in Copenhagen. Super Mario The softer dollar left the euro at a five-week high and eyeing $1.33, while a flurry of merger activity in the media sector was not enough to fend off the currency’s pressure on European shares as early gains turned to minor falls. Falls of 0.2% on London’s FTSE to 0.5% on Frankfurt’s DAX left the pan-regional FTSEurofirst 300 and Euro Stoxx 600 facing the prospect of their first weekly drop in over a month. Nevertheless, it was a milestone day for Europe, marking one year since European Central Bank (ECB) president Mario Draghi’s "Whatever it takes" speech that turned the tide in the eurozone debt crisis. Italian and Spanish government bonds were slightly lower, but it was otherwise a quiet day for debt markets that in 2012 were in panic mode amid fears the euro could implode. Most eurozone periphery bonds yields have dropped by at least a third since Mr Draghi’s move but it is eurozone bank shares that have been the biggest winners. The Stoxx 600 eurozone bank index is up 56% and France’s Credit Agricole and Spain’s Bankinter have surged nearly 150%, while Italy’s UniCredit has risen 74%. "Draghi’s speech was a real game changer. Investors’ perception of the eurozone dramatically changed, and many people stopped shorting Europe. The systemic fears about Europe’s debt crisis are gone," AlphaValue’s head of strategy, Pierre-Yves Gauthier, said in Paris. Gold shines The 0.2% dip in European shares added to the earlier 3% drop in Tokyo’s Nikkei to leave world stocks on course for a flat end to what has otherwise been their strongest month in almost two years. Wall Street was expected to see falls of around 0.3% in the S&P 500 and Dow Jones when trading resumes. With both the Fed and the ECB meeting next week, plus some significant political events in Europe, BNP Paribas economist Ken Wattret said investors were likely to remain cautious. "You look at the equity markets and the data in the US and Europe has been good yet we are flat, so that probably tells you that we have had a good run and there is a bit of a pause going on," he said. Gold had also started to sag by 10.30am GMT. It edged back to $1,327.5 an ounce but July’s 10% jump has been its best run since January 2012, albeit from a near three-year low. Elsewhere in commodity markets, Copper prices eased 0.5% to just below $7,000 a tonne. They had snapped a five-day winning run on Thursday, on concerns that a slowing Chinese economy may dent demand from the world’s top consumer. Brent crude prices also dipped 0.5% to about $107.15 a barrel. "We have a shift in sentiment towards demand concerns following Chinese economic data this week," Commerzbank senior oil analyst Carsten Fritsch said in Frankfurt. "Oil ought to be benefiting from the weaker dollar and strengthening US economy, but that is not the theme today."

Source