The dollar fell to fresh nine-year lows in trade-weighted terms on Thursday and gold prices reached a 16-year peak amid concerns over tensions in the Middle East and a renewed belief in the dollar's longer-term decline.

Traders said reports of Yassir Arafat's continuing ill-health were weighing on the dollar. “This spells trouble for the dollar since it could mean protracted US involvement in the region, not just Iraq,” said Kamal Sharma, currencies strategist at Dresdner Kleinwort Wasserstein.