Report on easy Fed line leaves dollar at five-week low, lifts gold

LONDON Fri Jul 26, 2013 1:43pm IST

A Tokyo Stock Exchange employee wipes his eyes as he works at the bourse in Tokyo July 22, 2013. REUTERS/Yuya Shino

A Tokyo Stock Exchange employee wipes his eyes as he works at the bourse in Tokyo July 22, 2013.

Credit: Reuters/Yuya Shino

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LONDON (Reuters) - The dollar held at a five-week low and gold headed for its best month in over 1-1/2 years on Friday, after a report that the U.S. Federal Reserve will next week underline its intention to keep interest rates low for a long time.

Setting the dollar on its slippery slope was a Wall Street Journal report that the Fed may debate tweaking its forward guidance message to hammer home its message that it will not be raising rates any time soon.

Against a basket of currencies the greenback was down 0.3 percent at 81.697 with the softness also adding to the upward pressure on the euro, which was at a five-week high following better economic data this week.

A flurry of merger activity helped lift Europe's broad FTSEurofirst 300 share index 0.2 percent as the region's markets opened, while Europe's debt markets saw a largely quiet start to the day.

A 3 percent drop in Tokyo's Nikkei in Asia, however, left world stocks flat overall, capping a slow end to what has otherwise been their strongest month in almost two years.

With both the Fed and the European Central Bank 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 U.S. 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.

"And next week we have a lot going on so the market is in a bit of a wait-and-see mode."

Talk of the Fed reiterating its supportive stance next week also buoyed gold, seen by investors as a good hedge against potential inflation.

Spot gold edged up to $1,334.6 an ounce to add to the 10 jump it has seen this month, is its best run since January 2012.

(Reporting by Marc Jones; Editing by Hugh Lawson)

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