Dollar rises as Moody's cuts Spain's debt rating

AP News
Posted: Mar 10, 2011 3:39 PM
Dollar rises as Moody's cuts Spain's debt rating

Europe's debt woes are boosting the dollar despite a deeper U.S. trade deficit.

The euro fell to $1.3794 late Thursday in New York trading from $1.3904 late Wednesday. The dollar rose to 83.02 Japanese yen from 82.70 yen, and the British pound dropped to $1.6054 from $1.6192.

The credit ratings agency Moody's lowered its rating on Spain's debt on Thursday because of worries about its country's banking sector, government's debt and sluggish economy. It warned further downgrades were possible.

Spain is one of the most indebted countries in Europe, and investors have worried that there would not be enough money available in emergency aid to help Spain should it require a bailout. That could destabilize the 17-nation euro currency bloc. Greece and Ireland received emergency aid last year from the European Union and the International Monetary Fund.

European Union officials are meeting in Brussels on March 24-25, supposedly to agree on a "comprehensive solution" to the crisis. But investors are wary that the 17 countries will not be able to agree on expanding the bailout fund and imposing new rules on budget deficits.

The dollar held on to gains even after the Commerce Department said the U.S. trade deficit increased 15.1 percent in January to $46.3 billion. Long-term trade deficits tend to weaken a currency.

Exports rose 2.7 percent, while imports rose 5.2 percent, primarily because of a surge in oil prices. The jump in oil prices has triggered worries about inflation in the U.S. The Federal Reserve has indicated that it does not consider the oil price rise as a substantial threat to the recovery, however, suggesting that it will keep interest rates near zero.

That has been weighing on the dollar this year because other major central banks, including the European Central Bank, are expected to raise interest rates before the Fed does. Higher rates tend to increase demand for a currency.

In other trading Thursday, the dollar rose to 0.9322 Swiss franc from 0.9302 Swiss franc late Wednesday, and edged up to 97.48 Canadian cents from 96.88 Canadian cents.

The dollar index, which compares the U.S. dollar against a group of six currencies, rose 0.71 percent by late Thursday.