Dollar against most, investors eye US debt rating

AP News
Posted: Aug 03, 2011 3:39 PM
Dollar against most, investors eye US debt rating

The dollar fell against most major currencies Wednesday on worries about U.S. debt and stagnant economic growth.

Although lawmakers passed a measure to raise the nation's debt limit and avoid default, planned spending cuts in the package might not be enough to ease concerns of Standard & Poor's and other agencies, analysts say.

The U.S. currently holds the top triple-A rating, and the major ratings agencies say that will stand for now.

"It is now clear to the markets that the current U.S. political state of affairs will not produce a deficit reduction plan that is sufficient to get the U.S. on a path to fiscal sustainability," said HSBC analyst David Bloom. He added that given the emphasis on cutting spending, it's not likely that lawmakers are going to do more to get the economy moving. That leaves stimulus efforts up to the Federal Reserve.

A move by the Fed to restart a bond-buying program to promote economic growth could make the dollar even less appealing to investors seeking big returns on their bets. The Fed aims to promote lending by keeping interest rates near zero.

Meanwhile two reports released Wednesday, on a weak service sector and fewer business orders to factories, suggest that U.S. economic growth is slowing.

"A recent string of disappointing US data ... highlight the challenges in restoring economic growth amidst high unemployment, a highly indebted consumer, banks' unwillingness to lend and growing uncertainty over the economic outlook," wrote Bank of New York Mellon currency analyst Michael Woolfolk. That's likely to keep traditional safe-haven currencies _ the Swiss franc, Japanese yen, and to a lesser extent, the dollar, in demand, he said.

In late trading Wednesday in New York, the euro rose to $1.4317 from $1.4201, even as investors remain concerned about Europe's debt crisis spreading to Spain and Italy.

The British pound rose to $1.6419 from $1.6297, while the dollar dropped to 76.95 Japanese yen from 77.22 yen.

The yen, like the Swiss franc, has gained sharply against the dollar this year as investors sought safety amid signs of a global growth slowdown. The euro and the dollar hit record lows against the franc Tuesday, while the dollar is circling a post-World War II low against the yen.

Switzerland's central bank cut the country's interest rate Wednesday to 0.0-0.25 percent from 0.0-0.75 percent in an effort to curb the franc's climb.

The euro surged against the Swiss currency and the dollar rose to 0.7685 Swiss franc late Wednesday, up from 0.7678 late Tuesday.

In other trading the dollar rose to 96.26 Canadian cents from 95.86 cents.