The dollar fell to a four-month low against the euro and weakened versus the yen after the downgrade of the UK's credit rating outlook to negative sparked off speculation about a similar risk to US government’s creditworthiness.
The greenback was headed for its biggest weekly drop in two months versus the euro after Standard & Poor's (S&P) yesterday cut its outlook on the UK's AAA credit rating, raising concern that the same may happen to the US.
The dollar weakened versus 13 of the 16 most-traded currencies after US Treasury yields rose the most in two weeks yesterday on concern that the Obama government will not be able to fund its fiscal spending.
The dollar declined to US$1.3916 per euro as of 1:48 p.m. in Tokyo, after dropping to US$1.3955, the weakest since Jan. 5. The US currency has slumped 3% this week, heading for the biggest loss since the five days to March 20.
The yen rose to 94.10 per dollar, after reaching 93.87, the strongest level since March 19. Japan’s currency is heading for a 1.2% gain this week. The yen traded at 130.94 versus the euro from 131.15.
The dollar touched a four-month low of 1.0895 Swiss francs from 1.0936. The U.S. currency fell to CUS$1.1346 from CUS$1.1374 yesterday, after reaching CUS$1.1328, the weakest since Oct. 14.
The pound traded at US$1.5834 from US$1.5844 yesterday after earlier climbing to US$1.5897, the highest since Nov. 6.
The Dollar Index, used by the ICE to track the US currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.2% to 80.412 after dropping to 80.21, the lowest since Dec. 29
The yen strengthened to a nine-week high versus the dollar after Japan's Finance Minister Kaoru Yosano said that the government won't intervene in the currency market and the Bank of Japan (BOJ) raised its economic assessment.
The Japanese central bank kept its target lending rate at 0.1% at the end of its policy meeting today and raised its economic outlook for the first time since July 2006. The BOJ also said it will accept foreign debt owned by banks as collateral for loans.
The cost to protect buyers of U.S. sovereign bonds for five years climbed to a two-week high, indicating a worsening perception of the nation’s credit quality. US credit-default swaps rose to 37.745 yesterday, the highest since May 4, from 34 on May 20. The five-year CDS price for Japan fell to 50 from 50.06 on May 20.
