The dollar dropped to a record low against the Swiss franc as a U.S. manufacturing index fell more than forecast and investors bet the debt accord President Barack Obama and congressional leaders reached will damp growth. The franc touched the strongest level on record versus the euro after manufacturing in the region also slowed. The Canadian and Australian dollars weakened as commodities and equities erased gains. The yen declined against the greenback after Nikkei reported that Japan is preparing to take steps to weaken the currency. “Focus is going to shift to the fiscal drag of these measures and the impact on growth, and that will ultimately mean a weaker dollar,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “Dollar-Swiss moves have to do with the U.S. bill and the market unsure if it’s a done deal.” The dollar gained 1 percent to $1.4250 per euro at 5 p.m. in New York, from $1.4398 June 29. Japan’s currency fell 0.6 percent to 77.21 yen per greenback after earlier appreciating to 76.30, the strongest level since March. The yen gained 0.5 percent to 110.03, from 110.54, against the 17-nation currency. The franc advanced 0.2 percent to 78.36 centimes per dollar and reached a record 77.31 centimes. The Swiss currency climbed 1.3 percent to 1.1165 per euro and touched a record 1.1028. Stocks dropped, pushing the Standard & Poor’s 500 Index down 0.4 percent, after the Institute for Supply Management’s factory index fell to 50.9 in July, the lowest since July 2009, from 55.3 the prior month. Economists in a Bloomberg News survey projected it would drop to 54.5. Yen Report The Thomson Reuters/Jefferies CRB Index of raw materials fell 0.2 percent after earlier gaining 1 percent. Japan’s currency fell against the majority of its most- traded peers as the Nikkei newspaper reported the government is preparing steps to reverse the yen’s recent gains and the Bank of Japan may consider a 5 trillion ($65 billion) to 10 trillion yen expansion of a 40 trillion yen asset-buying fund at an Aug. 4-5 meeting. The U.S. may allow intervention, given the debt- ceiling’s debate impact on currency, Nikkei reported without citing anyone. Central banks intervene in foreign-exchange markets by selling or buying currencies to influence prices. Finance Minister Yoshihiko Noda said today he’s watching currency markets closely and that recent movements haven’t reflected Japan’s economic fundamentals. The yen gained 3.5 percent over the past month against a basket of nine developed nation currencies, according to the Bloomberg Correlation-Weighted Currency Indexes. The franc surged 7.4 percent, while the U.S. dollar fell 1.6 percent. Canada, Australia Canada’s currency declined as much as 0.6 percent to 96.06 cents per U.S. dollar, the weakest since July 18, before trading at 95.70 cents, down 0.2 percent. Australia’s dollar fell 0.2 percent to $1.0971, from $1.0993 yesterday. “The prospect of even less government spending over the next decade can further increase headwinds on the U.S. economy,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “That can weigh on some of those growth-reliant currencies such as the Aussie and the Canadian dollar and translate into more gains for the yen and the Swiss franc.” Obama said from the White House yesterday that leaders of both parties in the U.S. House and Senate had approved an agreement to raise the nation’s debt ceiling by $2.1 trillion and cut the federal budget deficit by as much as $2.5 trillion over a decade. The House planned to vote today. The Senate will vote tomorrow, said Don Stewart, a spokesman for Minority Leader Mitch McConnell. U.S. Credit Rating The government will run out of options to prevent a default unless the $14.3 trillion ceiling is increased by tomorrow, Treasury Secretary Timothy F. Geithner has said. Standard & Poor’s placed the U.S. AAA rating on “CreditWatch” July 14, saying there’s a 50 percent chance it would be cut within 90 days even if an agreement is reached by the deadline. S&P said it needs to see “a credible solution to the rising U.S. government debt burden.” “The U.S. paper is still at risk of downgrade, so everything trades on edge until we hear from the ratings agencies on this plan,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd. Sterling advanced 0.2 percent to 87.44 pence per euro and fell 0.8 percent to $1.6296 as U.K. manufacturing unexpectedly shrank the most in more than two years in July. A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 49.1, the lowest since June 2009, from 51.4 the previous month, according to an e-mailed report in London today. European Manufacturing The euro dropped against most of its major counterparts after Europe’s index of manufacturing growth cooled to 50.4, the slowest pace in 22 months, from 52 in June. The 17-nation currency has fallen versus most peers in the past three months on concern the debt crisis triggered by Greece is spreading to bigger nations, threatening the region’s economic recovery. “Euro-Swiss is making new lows; that tells you that the U.S. may have arguably improved for the debt ceiling outlook, but that there is still risk out there, including the peripheral euro zone,” said Win Thin, head of emerging market strategy at Brown Brothers Harriman & Co. in New York. “The focus will come back on the euro zone.” Moody’s Investors Service said on July 29 it’s reviewing Spain’s Aa2 credit rating and that a cut would probably be “limited to one notch.” 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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