The euro declined to a one-week low against the dollar a day after Portugal became the second nation in the currency region after Greece to receive a junk credit rating from Moody’s Investors Service. The Swiss franc, yen and dollar rose against most of their major counterparts as Europe’s sovereign-debt crisis and China’s decision to increase interest rates spurred investor demand for haven assets. The Swedish krona and Norwegian krone were among the biggest losers against the dollar as commodities slumped. “The markets did not digest the downgrade of Portugal to junk status all too well,” said Jessica Hoversen, an analyst at the futures broker MF Global Holdings Ltd. in New York. “Now you have two major European economies regarded as junk by Moody’s. There are contagion fears.” The euro dropped 0.7 percent to $1.4322 at 11:26 a.m. in New York, from $1.4429 yesterday, after touching $1.4286, the lowest level since June 28. The euro slid 1 percent to 115.76 yen, from 116.97, after dropping as low as 115.55. The dollar fell 0.3 percent to 80.87 yen. The Swiss franc appreciated 1 percent to 1.2011 against the euro and climbed 0.2 percent to 83.86 centimes versus the dollar. The currency benefits from Switzerland’s role as a stable, neutral financial center. Sweden’s krona declined 0.9 percent to 6.3473 versus the dollar and Norway’s krone slid 0.7 percent to 5.4115 as investors sought refuge. Drop in Commodities The Thomson Reuters/Jefferies CRB Index of raw materials decreased 0.1 percent. Crude oil for August delivery dropped 0.3 percent to $96.62 a barrel in New York. The Standard & Poor’s 500 Index decreased 0.2 percent. The dollar remained lower against the yen after the Institute for Supply Management in Tempe, Arizona, reported that its non-manufacturing Index dropped to 53.3 last month from 54.6 in May. The median forecast of 71 economists in a Bloomberg News survey was for a reduction to 53.7. Readings greater than 50 signal expansion. The Philippine peso climbed to its strongest level since May 3 after Fitch Ratings forecast the nation’s economy would expand as much as 6 percent this year and next. The peso appreciated 0.4 percent to 42.900 per dollar after touching a two-month high of 42.825, according to Tullett Prebon Plc. The euro fell after Moody’s lowered Portugal’s long-term government bond ratings yesterday to Ba2 from Baa1. The reductions stem partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said in a statement. Greece’s Rating Greece received the lowest sovereign credit rating in the world from S&P on June 13, when the company lowered it to CCC, eight levels below investment grade. S&P rates Portugal at BBB-, the lowest investment grade. The Portuguese 10-year government bond yield jumped today to a record 12.55 percent, while Irish, Italian, Spanish and Greek yields also surged on bets more ratings cuts may follow. “The European situation is really weighing on sentiment,” said Jens Nordvig, a managing director of currency research at Nomura Holdings Inc. in New York. “It’s not only Portugal, but it’s Italy and Spain. We had a pretty big rally at the end of last week, so we’re giving back some of those gains now,” Nordvig said, referring to the euro. Germany revived today a proposal for a debt swap to lengthen Greece’s bond maturities as the chief of the biggest group of international financial companies recommended that European governments buy back outstanding Greek securities. Rollover Proposal The financial firms will discuss a proposal from French banks to roll over 70 percent of Greece’s bonds maturing by mid-2014 into new 30-year securities backed by AAA-rated collateral. European Union leaders want creditors to roll over voluntarily about 30 billion euros ($43 billion) of Greek bonds to support loans by the EU and the International Monetary Fund. “We’re going to discuss a range of options there, including variations on the original French proposal as well as options relating to buybacks,” said Charles Dallara, managing director of the Institute of International Finance. The Washington-based IIF represents more than 400 of the world’s biggest banks and insurers, including Deutsche Bank AG and BNP Paribas SA, and has led the investor talks. The European Central Bank will increase its main refinancing rate to 1.50 percent tomorrow from 1.25 percent, according to all 55 economists in a Bloomberg News survey. Swaps traders are betting the ECB will raise its target rate by 76 basis points over the next 12 months. China is raising benchmark interest rates for the third time this year after inflation accelerated to the fastest pace since July 2008. The one-year deposit rate will rise to 3.5 percent, the People’s Bank of China said on its website today. The move may fuel concern that monetary tightening will trigger a slowdown in the world’s second-biggest economy. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Source