The dollar hit a record low against the Swiss franc and a four-month trough against the yen on concerns about US finances and the health of the country’s recovery.
The dollar found support, and haven demand for the Swiss franc and yen receded, early in the session after Barack Obama announced that policymakers in Washington had agreed on a plan to raise the country’s debt limit.
But the dollar failed to hold on to its gains against the Swiss franc and yen amid fears that the terms of the deal on the table in Washington would not appease rating agencies.
“The likelihood of a downgrade remains a significant risk, in our opinion,” said Sara Yates of Barclays Capital.“We continue to expect increased pressure on the dollar over the medium and long run.”
Haven demand for the Swiss franc and yen accelerated after the Institute for Supply Management’s July survey of activity in the US manufacturing sector came in weaker than expected.
The news, which came after figures last week showed that the US economy grew more slowly than expected in the second quarter, heightened risk aversion and raised speculation that the Federal Reserve could engage in a third round of quantitative easing.
The Swiss franc rose to a record of SFr0.7729 against the dollar.
It hit all-time peaks against the euro and the pound, rising 1.9 per cent to SFr1.1162 and climbing 1.8 per cent to SFr1.2751, respectively, by late in the day in New York.
The dollar touched a low of Y76.29 against the yen, its weakest level since Japan intervened to stem strength in its currency in March and just shy of the all-time low of Y76.25.
A late-session report that the Bank of Japan was considering fresh intervention offered only mild support. The yen retreated against the dollar by 0.3 per cent on the day to Y77.12.
However, it was still higher by 1.2 per cent against the euro, at Y110.01.
The dollar found haven support versus the euro, rising 0.7 per cent to $1.4263, and climbing 0.5 per cent to $1.6301 against the pound and gaining 0.1 per cent to $1.0989 against the Australian dollar.
Lee Hardman, at Bank of Tokyo-Mitsubishi UFJ, said support for the dollar was unlikely to last, however, in light of the recent weak run of US economic data.
“The dollar should remain on the defensive, reflecting building expectations that the Fed will soon act to ease monetary policy again to support growth,” he said.
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