SYDNEY—The U.S. dollar rose against the euro and riskier currencies in Asia Monday as heightened global uncertainty and Standard & Poor's downgrade of U.S. debt drove safe-haven flows into the greenback.
G-7 finance ministers pledged renewed cooperation against dramatic currency swings, as they braced for markets to react to the S&P move and renewed concern about the ability of governments in Spain and Italy to pay their bills.
"Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate," G-7 ministers and central bank governors said in a statement after an overnight meeting.
However, the statement disappointed some market players who were expecting a more aggressive tone.
"We got faked out," a senior options dealer at a major Japanese bank said.
Commodity-linked currencies like the Australian dollar tumbled Monday, with the trading at $1.0329 from $1.0447 late Friday. But analysts said strong capital inflows in pursuit of Australia's high yielding, AAA-rated government bonds should support the Australian dollar going forward.
The euro opened higher against the dollar, supported by a pledge from the European Central Bank to resume buying euro-zone government bonds as necessary. But the common currency lost its sparkle as risk aversion gathered speed, and was lately trading at $1.4306.
The dollar opened lower against the safe-haven Japanese yen and Swiss franc, but pared some of its losses. The dollar was at ¥78.04, from ¥78.48 late Friday. It was trading at 0.7599 franc, from 0.7673 franc, but off a record low of 0.7493 franc as Asia trade got under way.
Overall trading in major currencies was more muted than anticipated in the wake of S&P's U.S. downgrade.
Those subdued moves contrasted with Monday's frenzied sell-off in Asian shares, with the Nikkei shedding 2.0% by mid-day, the Kospi losing 2.9% and the Sensex falling to a one-year low.
Emerging Asian currencies fell against the dollar later in the day, with the Korean won falling to a five-week low on the stock market sell-off. Central banks in South Korea and Indonesia were suspected of intervening in markets to prevent their currencies from falling too rapidly.
The People's Bank of China fixed the dollar-yuan central parity rate aggressively lower at 6.4305, a new all-time high for the yuan. While it might not have been unexpected in the wake of S&P's strike on the dollar, the level still took some market players aback.
"We were forecasting a fixing of around 6.4370, so this was quite a surprise," said a Shenzhen-based local bank trader who declined to be named.
U.S. Treasury yields fell in Asia despite the downgrade, with analysts pointing to the resilience of the deep U.S. debt market.
"Central bank holding of Treasurys would appear to have more to do with liquidity rather than the AAA rating and there is no alternative to the dollar as a reserve currency at present," said Ivan Colhoun, chief economist at ANZ Bank in Sydney.
