The dollar declined to a more than four-month low against the euro and weakened versus the yen on speculation the U.S. may lose its AAA credit rating. The yen rose to a nine-week high versus the dollar after Japan’s Finance Minister Kaoru Yosano said the government won’t intervene in the currency market and the Bank of Japan raised its economic assessment. The dollar headed for its biggest weekly drop in two months versus the euro after Pacific Investment Management Co.’s Bill Gross said the U.S. will “eventually” lose its AAA credit rating. The pound slid in the week against the dollar after Standard & Poor’s lowered its outlook for the U.K.’s top credit rating. “The impact of a possible downgrade on the U.S. would be much greater than the one on the U.K. because the dollar still represents 60 percent of the global foreign reserves,” said Hidetoshi Honda, a currency strategist at Mizuho Corporate Bank Ltd. in London. “We’d expect massive outflow of dollars from foreign reserves so that is dragging the dollar lower.” The dollar weakened to $1.3958 per euro as of 6:27 a.m. in New York, after reaching $1.3979, the lowest level since Jan. 2. The U.S. currency slumped 3.4 percent this week, heading for the biggest loss since the five days to March 20. The yen advanced to 94.13 per dollar, after reaching 93.87, the strongest level since March 19, and was up 1.1 percent in the week. The yen was little changed at 131.34 versus the euro, from 131.15 yesterday and 128.43 on May 15. British Pound The pound traded at $1.5840, from $1.5844 yesterday, after earlier climbing to $1.5897, the highest since Nov. 6. The currency slumped as much as 1.5 percent yesterday after S&P lowered its rating outlook to “negative” from “stable,” and said the nation faces a one in three chance of a rating cut. The cost to protect buyers of U.K. sovereign bonds for five years fell today to 80 basis points, from 80.5 yesterday, according to CMA DataVision prices. The dollar weakened the most versus the Singapore and New Zealand dollars after U.S. Treasury yields rose the most in two weeks yesterday on concern the government will not be able to fund its fiscal spending, and as BankUnited Financial Corp. became the biggest U.S. bank to collapse this year. BankUnited was in an “unsafe condition” and the quality of its loan portfolio had deteriorated, the Office of Thrift Supervision, the lender’s main regulator, said yesterday. BankUnited joined 33 U.S. banks and at least five credit unions that have gone under since January. Hard Currency “The urgency for money managers with large U.S. dollar holdings to diversify could well intensify,” analysts led by Callum Henderson, global head of currency strategy in Singapore at Standard Chartered Bank, wrote in a note today. “The first considerations will likely be hard currencies that are liquid. On these counts, the likes of the euro, yen, Australian dollar and Canadian dollar will win out.” The dollar touched a more than four-month low of 1.0871 Swiss francs before trading at 1.0895, from 1.0936 yesterday. The U.S. currency fell to C$1.1303, from C$1.1374, after reaching C$1.1302, the weakest since Oct. 9. The U.S. currency also fell for a fifth day versus the euro after Gross, the co-chief investment officer at Pimco, said the U.S. will “eventually” lose its AAA rating. “The markets are beginning to anticipate the possibility” of a U.S. credit rating-cut, Newport Beach, California-based Gross said in an interview yesterday on Bloomberg Television. “It’s certainly nothing that’s going to happen overnight.” Dollar Index The administration of President Barack Obama will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc. Treasury Secretary Timothy Geithner said yesterday the Obama administration is committed to minimizing the federal budget deficit, targeting a reduction to 3 percent of gross domestic product or smaller, compared with a projected 12.9 percent this year. The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.3 percent to 80.258 after dropping to 80.153, the lowest since Dec. 29. The cost to protect buyers of U.S. sovereign bonds for five years climbed to a two-week high, indicating a worsening perception of the nation’s credit quality. U.S. credit-default swaps rose to 39.5, from 37.5 yesterday, the highest since April 29. The five-year CDS price for Japan fell to 46, from 50. Indian Rupee India’s rupee headed for the biggest weekly advance in 13 years on optimism Prime Minister Manmohan Singh, armed with a fresh electoral mandate, will revive efforts to sell state assets and attract foreign investment. The currency gained 0.5 percent to 47.1450 per dollar, extending its gains this week to 4.5 percent, heading for its best weekly rally since March 1996. The yen strengthened as the Bank of Japan kept its target lending rate at 0.1 percent at the end of its policy meeting today and raised its economic assessment for the first time since July 2006. The central bank also said it will accept foreign debt owned by banks as collateral for loans. The yen headed for a thirdly weekly gain versus the greenback after Japan’s Finance Minister Yosano said the “government isn’t considering currency intervention at this point.” Policy makers haven’t fully analyzed why the yen is gaining, he said at a press conference today in Tokyo. “We are seeing the appreciation of the yen, but mainly because of the negative views on the U.S. economy,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment-banking unit of Credit Agricole SA. “It would be hard for the Japanese government to change the direction of the market because it’s more of a dollar-weakness issue rather than a yen-strength issue.” Central banks intervene when they buy or sell currencies to influence exchange rates.

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