The dollar slid toward a record low against the Swiss franc after U.S. lawmakers failed to agree on raising the nation’s $14.3 trillion debt ceiling, boosting the odds of a default as soon as next week. The franc and yen rose against most of their major peers as Republicans prepared to force action on a shorter-term extension of the debt limit than President Barack Obama has requested, spurring demand for the currencies as havens. Gains in the yen were limited on speculation Japan will intervene in markets to stop its appreciation. The euro was little changed, paring an earlier advance, after Moody’s Investors Service cut Greece’s sovereign credit rating. “The main driver is concern over whether the U.S. authorities will eventually reach an agreement over raising the debt ceiling,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The main beneficiaries would be the Swiss franc and the yen. The dollar may continue to underperform because there’s a risk that financial instability will pick up as the week progresses and we get closer to the deadline.” The dollar fell 1.2 percent to 80.92 Swiss centimes as of 7:40 a.m. in London. It reached a record low 80.33 centimes on July 18. The greenback fetched 78.39 yen from 78.54 after touching 78.12 yen, the least since March 17. The U.S. currency traded at $1.4377 versus the euro from $1.4360 last week. The yen was little changed at 112.62 per euro. The franc gained 1.2 percent today, making it the best performer according to Bloomberg Correlation-Weighted Currency Indexes. The yen added 0.1 percent, while the dollar was little changed. Block Obama Republicans and Democrats prepared dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt and quell market concerns about a potential default Aug. 2. House Speaker John Boehner of Ohio told fellow Republicans he was determined to force action on a two-step debt-limit extension that would provide a roughly $1 trillion, shorter-term increase than President Barack Obama has requested, defying a veto threat and the administration’s warnings of dire economic consequences. He aimed to unveil his plan as early as today, when he was to update Republicans in a closed-door meeting in the Capitol. “A half-baked answer would probably also be disappointing to the markets,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia’s second-largest lender. “They’re looking for a solution that’s not just short term but something long term, and that’s what the ratings agencies have said they want.” Dollar Index The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 74.155. The index reached 73.889 on July 21, the lowest since June 9. America may lose its top credit rating as early as August because of the risk that Congress will agree to limited reductions in the budget deficit compared with $3 trillion to $4 trillion in cuts recommended by Standard & Poor’s and Moody’s Investors Service, according to Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG. “While clearly a blow to U.S. prestige, the impact on the dollar may be muted,” he wrote in a note to clients. “Central banks will not sell Treasuries given their need to hold foreign- exchange reserves in liquid assets.” Investors outside the U.S. own $4.51 trillion in U.S. Treasuries, or about 50 percent of the marketable government debt outstanding, according to the Treasury Department. Yen Gains Gains in the yen were limited after it reached levels that spurred coordinated selling of the currency in March. Bank of Japan Governor Masaaki Shirakawa said today that the yen’s strength could hurt the economy and the central bank is ready to take appropriate action as needed. “Policy makers have to signal a possible intervention,” said Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. “Yet, that won’t be powerful enough to create a trend.” Group of Seven nations jointly sold the yen on March 18 after it reached a postwar record of 76.26 to the dollar the previous day, saying in a statement they wanted to reduce “excess volatility and disorderly movements.” Japan’s Finance Ministry sold 692.5 billion yen that month in its first currency intervention since September. Euro-Franc The euro dropped for the first time in three days against the franc after Moody’s slashed its long-term foreign currency debt rating on Greece to Ca from Caa1. The European Union support package for Greece allows the country an “orderly default” and buys time, according to Moody’s. “The headlines on Moody’s rating have spurred selling of the euro,” said Kuniyuki Hirai, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender. “The incident has helped remind us that the Greek issue is a cause for risk aversion.” The euro dropped to 1.16366 Swiss franc from 1.17618. Australia’s dollar declined against the U.S. currency, snapping a four-day gain, as stock losses damped demand for higher-yielding assets. The MSCI Asia Pacific Index of Asian shares lost 1.1 percent, and Standard & Poor’s 500 futures expiring in September also retreated 1 percent. The Aussie fell 0.5 percent to 84.84 yen. It declined to $1.0823 from $1.0851 in New York on July 22. To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

Source