The dollar fell for a second day versus the euro, the biggest two-day drop in five weeks, after Moody’s Investors Service put the U.S. under review for a credit rating downgrade, damping demand for the nation’s currency. The greenback declined for a fifth day against the yen, touching the lowest level in almost four months, before a report that economists said will show retail sales dropped in June and as Federal Reserve Chairman Ben S. Bernanke prepared to testify for a second day to U.S. lawmakers. New Zealand’s currency rose to a record against the dollar after a government report showed economic growth quickened. The euro fell to an all-time low versus the Swiss franc before Italy sells bonds. “People may think that the U.S. dollar’s reserve status is diminishing, so that hurts the dollar,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia’s second-largest lender. “Bernanke’s comments last night were positive for risk markets because he opened the door a little bit further to the possibility of adding more stimulus.” The dollar slid to $1.4210 per euro at 1:15 p.m. in Tokyo from $1.4167 in New York yesterday, when it dropped 1.4 percent, its biggest loss since Jan. 13. It fell to 78.65 yen from 78.98 yen, after touching 78.47 yen, the lowest since March 17. The yen traded at 111.76 versus the euro from 111.86. The U.S., rated Aaa by Moody’s since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk is low, Moody’s said in a statement yesterday. ‘Far Apart’ U.S. President Barack Obama and congressional leaders have as yet failed to reach a compromise on reducing deficits and raising the $14.3 trillion federal debt ceiling before the government exceeds its borrowing authority on Aug. 2. Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, according to two people familiar with the matter. Bernanke yesterday testified before the House Financial Services Committee as the fiscal-policy deadlock threatens to reverse the decline in borrowing costs he gained through record stimulus. He speaks before the Senate today. The Fed is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling, Bernanke said. U.S. Data U.S. retail sales fell 0.1 percent in June, following a 0.2 percent decline in May, according to a Bloomberg News survey before the Commerce Department report today. “If the data is soft, it would give the market more of an excuse to anticipate more quantitative easing,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “More important is the debate about the U.S. debt ceiling, any signs that they can’t get toward an agreement may affect risk appetite.” The franc, which benefits in times of turmoil from the nation’s role as a stable, neutral financial center, climbed to a record 80.83 centimes against the dollar, before trading at 81.18 from 81.78. It rose 0.4 percent to 1.15367 per euro after reaching an all-time high of 1.14945. Italian 10-year yields surged above 6 percent earlier this week on concern Europe’s third-largest economy will fail to implement a 40 billion-euro ($56.9 billion) austerity package. The nation plans to sell more than 3 billion euros of bonds maturing in 2016 to 2026 today. Kiwi Dollar New Zealand’s dollar climbed for a second day after the country’s economic growth quickened, signaling the nation is recovering from its deadliest quake in eight decades in February. The so-called kiwi advanced against all of its 16 major counterparts as the government said the economy grew 0.8 percent in the first quarter, adding to speculation the Reserve Bank of New Zealand will raise interest rates this year. The economic data “is quite strong,” said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “It showed the economy probably had more momentum in it than possibly expected around the time of the earthquake. It’s going to be another positive for the kiwi.” New Zealand’s dollar rose 0.5 percent to 84.18 U.S. cents after advancing to 85.07, the highest level since it was freely floated in 1985. It fetched 66.21 yen from 66.14 yesterday. Japanese Finance Minister Yoshihiko Noda said it would be “problematic” if recent one-sided currency movements continue. That fueled concern Japan will sell yen to halt gains. Noda reiterated today he will continue to closely watching the market. Japan last sold yen to slow its rise when the Group of Seven nations joined in coordinated action on March 18 after the yen surged to a postwar record of 76.25 per dollar the previous day. Yen gains threaten Japan’s recovery from the March 11 earthquake and tsunami. “Japan has an option at any time in any situation to act if the market becomes disorderly” and threatens growth prospects, said Takatoshi Kato, a former top currency official in Japan, in an interview yesterday in Tokyo. 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: Rocky Swift at rswift5@bloomberg.net

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