Switzerland’s franc strengthened to a record against the dollar on demand for the safest assets as U.S. lawmakers failed to agree on raising the nation’s $14.3 trillion debt ceiling and Greece’s credit rating was cut.
The franc also appreciated toward a record versus the euro, while Japan’s yen rose against 15 of 16 major peers. U.S. Republicans prepared to force action on a shorter-term extension of the debt limit than President Barack Obama has requested. The euro slid against the yen as Moody’s downgraded Greece by three steps, saying the European rescue plan for the debt-laden nation will amount to a default.
“It’s all about the U.S. debt ceiling now,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “The deadline for a deal is coming up pretty quickly. That is risk negative, and the logical trades are short dollar-yen and short dollar-Swiss.”
Switzerland’s franc gained 2.1 percent against the dollar to reach a record 80.21 centimes and was 1.9 percent stronger at 80.40 centimes as of 6:58 a.m. in New York. Versus the euro, the franc appreciated 1.7 percent to 1.1560. It reached a record 1.13737 on July 18.
The dollar weakened 0.5 percent to 78.19 yen after reaching 78.06, the least since March 17. The U.S. currency was little changed at $1.4368 against the euro. The euro fell 0.4 percent to 112.36 yen.
U.S. Treasuries fell today, led by 30-year debt, while German bunds rose.
Veto Threat
The franc gained 1.9 percent today, making it the best performer according to Bloomberg Correlation-Weighted Currency Indexes. The yen added 0.3 percent, while the dollar was 0.2 percent weaker, the indexes show.
U.S. House Speaker John Boehner plans to press ahead with a two-step debt-limit extension that Obama has threatened to veto, fueling concern the nation is lurching toward a default as early as Aug. 2 and jeopardizing its AAA credit rating.
Secretary of State Hillary Clinton today reassured China, the top holder of American debt, that the U.S. will resolve the impasse, while People’s Bank of China adviser Xia Bin said he remains confident an agreement will be reached.
“There’s a risk that financial instability will pick up as the week progresses and we get closer to the deadline,” 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.”
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, weakened 0.1 percent to 74.12. 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.”
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 an “orderly default” and buys time, Moody’s said.
‘Orderly Default’
“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.”
Gains in Japan’s currency 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.
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.
Australia’s dollar slid against the U.S. currency, snapping a four-day gain, and South Africa’s rand fell as demand for higher-yielding assets waned.
The so-called Aussie fell 0.7 percent to 84.66 yen. It declined to $1.0824 from $1.0851 in New York on July 22.
The rand snapped a four-day advance and depreciated as much as 1.1 percent, the most in a week, to 6.8475 per dollar. It was 0.2 percent weaker at 6.7848 per dollar and declined 0.3 percent to 9.7500 per euro.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
