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

The dollar fell to a record against the Swiss franc and declined for a second day against the yen as Standard & Poor’s downgrade of the U.S.’s long-term credit rating from AAA spurred demand for the safest assets on concern consumer and business confidence will deteriorate. The greenback weakened against the euro before the Federal Open Market Committee meets Aug. 9 to decide on monetary policy after S&P cut the U.S. one level to AA+ on Aug. 5. Australia’s currency dropped for an eighth day against the U.S. dollar on speculation equity and commodity markets will extend last week’s slide amid concern over slowing global growth. Gains in the yen were trimmed amid speculation Japan will repeat last week’s intervention to weaken its currency by selling it. “Initially we’re going to see massive risk off and demand for traditional safe-haven currencies such as the Swiss franc and yen,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “This will be a real test of intervention to see whether or not officials can withstand the safe-haven flows that may head their way.”

“S&P had been very clear about what it wanted to see in order for the U.S. to maintain its AAA rating, and the agreement reached last week had not met those criteria,” Paul Robinson, a strategist at Barclays in London, wrote in a note to clients. “Commodity currencies look most vulnerable in the short run, again because of the risk element.” The committee of bond dealers and investors that advises the U.S. Treasury said the dollar’s status as the world’s reserve currency “appears to be slipping,” in quarterly feedback presented to the government on Aug. 3. “The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one member of the Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pacific Investment Management Co. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”

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