The greenback headed for its biggest weekly drop versus the yen in three months after S&P said there’s at least a 50 percent chance it will cut the AAA rating within 90 days on risks a stalemate will endure beyond any near-term deal to raise the U.S. debt limit. The Swiss franc held five days of gains versus the dollar as concern the global recovery is slowing boosted demand for safer investments.
“Uncertainty about the credit rating and debt ceiling talk will continue weighing on the dollar,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The market has a negative view for the dollar.”
The dollar fell to $1.4167 per euro as of 1:36 p.m. in Tokyo from $1.4143 yesterday in New York. The U.S. currency traded at 81.54 Swiss centimes from 81.60 yesterday, when it slid to a record 80.83. The greenback fetched 79.21 yen from 79.14 yen, headed for a 1.8 percent loss this week. The yen was at 112.20 per euro from 111.92.
S&P may lower the U.S.’s long-term rating by one or more notches into the AA category if it concludes Congress and President Barack Obama’s administration haven’t achieved a credible solution to the rising government debt burden and aren’t likely to achieve one in the near future, the company said in a statement dated yesterday.
‘No Way’
Moody’s Investors Service put the U.S. Aaa credit rating on review for a downgrade on July 13, citing concern officials won’t raise the nation’s $14.3 trillion debt limit in time to prevent a missed payment.
There’s “no way to give Congress more time” on lifting the debt limit, Treasury Secretary Timothy F. Geithner said after meeting with Democratic lawmakers on Capitol Hill in Washington. He has repeatedly said the U.S.’s borrowing authority will end on Aug. 2 without congressional action.
The dollar also weakened before a U.S. report that economists said will show the cost of living fell in June for the first time in a year, allowing the Federal Reserve to maintain record stimulus without worrying about inflation.
The consumer-price index decreased 0.1 percent, after a 0.2 percent gain in May, according to economists surveyed by Bloomberg News. The so-called core measure, which excludes more volatile food and energy costs, increased 0.2 percent, the survey showed.
Additional Action
The Fed is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling, central bank Chairman Ben S. Bernanke said July 13. The Fed ended its $600 billion bond-buying program, also called quantitative easing, last month.
“I don’t think QE3 is off the table, and certainly if there is any opportunity for Bernanke to print money he would do it,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “If we see a softer CPI number over the next couple of months, that would be a catalyst” for dollar weakness.
Separate U.S. data today will show industrial production rose 0.3 percent in June after a 0.1 percent gain in May, according to another Bloomberg survey. A regional Fed report may show New York-area factories expanded in July after unexpectedly contracting the prior month.
Swiss Franc
The franc traded 0.5 percent from a record high against the euro as concern the European debt crisis is spreading boosted demand for safer assets.
Italian government bonds fell yesterday after borrowing costs climbed to a three-year high at a five-year note auction amid concern the nation will be drawn into the turmoil that’s forced Greece, Ireland and Portugal to seek bailouts.
Results of European bank stress tests to be released today may show that about 10 failed because they had less than the required 5 percent core tier 1 capital, the Financial Times reported, without saying where it got the information.
The euro traded at 1.15511 franc from 1.15429 yesterday, when it fell to a record low 1.14945.
Gains in the yen were tempered after Japan’s Finance Minister Yoshihiko Noda said he’s watching markets carefully because the currency’s moves have been “one-sided” in the last few days, fueling concern the authorities will intervene to support exporters.
Policy makers need to be mindful of the yen’s impact on the economy including corporate sentiment, Noda told reporters today in Tokyo.
“Every time there’s a bout of nervousness around sovereign debt issues, the yen and Swiss franc always strengthen,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The perennial risk with the yen is that if it continues to head lower the market will be nervous of sending it lower still for fear of intervention.”
--Editors: Garfield Reynolds, Naoto Hosoda
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net
