Barefoot Investor: Dollar Weakens Versus Euro, Yen, Franc After S&P Downgrades U.S.’s Rating

The dollar dropped to a record low against the Swiss franc and fell for a second day versus the yen after Standard & Poor’s downgrade of the U.S. added to concern the fiscal health of the world’s biggest economy is slipping.

The greenback weakened against the euro before the Federal Reserve meets tomorrow on monetary policy after S&P cut the U.S. one level on Aug. 5. The euro also advanced after the European Central Bank signaled it’s ready to start buying Italian and Spanish bonds to curb the region’s debt crisis. The yen gained against most major peers as Asian shares slid for a fifth day, supporting demand for Japan’s currency as a refuge.

The dollar fell to as low as 74.85 Swiss centimes before trading at 75.85 centimes as of 1:20 p.m. in Tokyo from 76.74 in New York on Aug. 5. The U.S. currency weakened to 78.00 yen from 78.40 last week. Against the 17-nation euro, it declined to $1.4313 from $1.4282. The euro fetched 111.64 yen from 111.97.

S&P Outlook 


S&P kept the outlook on the U.S. rating at “negative” as it became less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA from AA+ within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based company said on Aug. 5 after markets closed.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended a debt-ceiling impasse that had pushed the Treasury to the edge of default. Moody’s and Fitch also said downgrades were possible if lawmakers fail to enact debt-reduction measures and the economy weakens.

S&P’s move “highlights the much-less advanced pace of fiscal consolidation in the U.S., relative to Europe and the U.K.,” John Normand, the London-based global head of foreign- exchange strategy at JPMorgan Chase & Co., wrote in a report to clients.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell for a second day, slipping 0.3 percent to 74.368.(Bloomberg)


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