The euro weakened against the dollar after Irish debt was downgraded to junk by Moody’s Investors Service and yields surged in Italy, drawing the euro zone’s largest debtor further into the region’s financial crisis. The Swiss franc and yen were the top performers against the greenback as investors sought safety amid warnings from ratings companies about the U.S. and Europe. The dollar advanced after Federal Reserve Chairman Ben S. Bernanke told Congress inflation has moved higher, boosting speculation the central bank won’t take further steps to support the U.S. economy. A report next week will update global demand for U.S. Treasuries. “The European debt crisis is continuing to rear its ugly head; the debt crisis is far from over,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “Ireland was cut to junk, everyone started to worry about a possible default for Italy -- overall that’s the main story.” The euro fell 0.8 percent to $1.4157 in New York, from $1.4265 on July 8, its second straight weekly decline. The yen strengthened 2.6 percent against the euro to 112.02, the biggest five-day gain since May 6. The dollar weakened 1.9 percent to 79.13 yen from 80.64. Swiss Strength The franc rose against all its major counterparts and reached records versus the dollar and euro on July 14. It gained 2.6 percent versus the dollar to 81.52 centimes, from 83.66, touching 80.83. Switzerland’s currency surged 3.3 percent against the euro to 1.15384, from 1.19320, climbing to a record 1.14945. The Swiss National Bank is “monitoring the euro-franc exchange rate very closely,” central bank Vice President Thomas Jordan said July 14. The franc has gained 8.5 percent against the euro this year. Gold rose to records in London and New York as investors sought a reprieve from volatility. Implied volatility among currencies of the Group of Seven nations jumped 9.8 percent, the biggest increase on a weekly basis since March 18, according to a JP Morgan Chase & Co. index. “If you look at the gold market it has had significant moves and is at record highs as the currency markets are trying to balance out huge risks in both the U.S. and Europe,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. Yen Concern Japanese Finance Minister Yoshihiko Noda expressed concern about the “one-sided” moves of the yen this week, which was the second-best performer against the dollar. The yen strengthened to 78.47 against the dollar, the best level since March 17. Chief Cabinet Secretary Yukio Edano echoed Noda’s comments, saying rapid foreign-exchange moves weren’t “desirable.” Group of Seven nations jointly sold Japan’s currency on March 18 after it surged to a postwar record of 76.25 per dollar the previous day, threatening the nation’s recovery from the March 11 earthquake and tsunami. Yields on Italian two-year debt reached a record 4.815 percent on July 12 amid investor concern the region’s debt crisis will spread. Italy is the euro region’s biggest sovereign debt market, with 1.8 trillion euros ($2.6 trillion) of outstanding debt as of Dec. 31, compared with 1.1 trillion euros of German debt outstanding on March 31, according to websites from the nations’ debt agencies. Irish Debt Moody’s cut Ireland to Ba1 from Baa3 on July 12 and S&P said it may lower the U.S.’s long-term rating by one or more levels on July 14. The euro has fallen 1.5 percent in the past month among 10 developed-nation currencies, according to Bloomberg Correlation- Weighted Currency Indexes. The dollar is down 1.4 percent and the yen is up 1.2 percent. The dollar was supported after Bernanke told Congress July 14 that inflation is “higher” and “closer” to the central bank’s informal target than was the case in August 2010, damping speculation the Fed will take additional action to spur the economy. “Comments coming out from Bernanke saying inflation is higher now than it was last year is being taken as the Fed is not yet ready for action,” said Mary Nicola, a New York-based currency strategist at BNP Parisbas SA. Kiwi Rises New Zealand’s currency rose against all its major counterparts excluding the franc, the yen and the Canadian dollar after the nation’s economy expanded 0.8 percent in the three months ended March 31 from the previous quarter, the government statistics agency said in Wellington on July 14. The central bank forecast growth of 0.3 percent. “The GDP figure that came out during the week was quite a strong number and a big boost for the currency,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The strength of the New Zealand dollar is a reflection of the strength of the economic recovery and rebound following the earthquake earlier this year.” The kiwi rose 0.9 percent to 84.54 U.S. cents after reaching 85.07 on July 14th, the strongest since it was freely floated in 1985. To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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