Dollar gets boost as a safer bet; drops vs yen

AP News
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Posted: Aug 10, 2011 5:18 PM
Dollar gets boost as a safer bet; drops vs yen

The yen and the dollar veered higher Wednesday as investors sought safety amid worries about high debt and slow growth in Europe and the U.S.

The Federal Reserve acknowledged the risk of a U.S. downturn Tuesday, saying it will leave interest rates at record lows for at least two years to support the U.S. economy.

On Wednesday, concerns about European debt also propelled investors' desire for safety, and the euro slid to $1.4208 from $1.4222.

Shares of European and U.S. banks tumbled because of fears about a downgrade to France's AAA credit rating and concerns about the health of financial institutions.

The downgrade of U.S. debt by ratings agency Standard & Poor's last week fueled worries that France could be next to lose the rare top rating if it contributes to further bailouts of eurozone countries.

European leaders agreed to overhaul and expand the bailout fund last month in an effort to protect Italy and Spain, two of Europe's biggest economies, from succumbing to the debt crisis. If the two countries needed emergency aid, that could overwhelm the available funds.

But the risk of a sudden French downgrade, without any previous warning, was low, said Camilla Sutton, currency strategist at Scotia Capital. That such a fear could suddenly topple most currencies against the dollar was a sign of just how "very nervous and very vulnerable" financial markets are, she said.

The dollar fell to 76.83 Japanese yen from 77.01 yen, hovering just above a post-World War II low. But the dollar rose against the Swiss franc, a day after hitting its latest record low, because the Swiss central bank moved to try to curb its currency's gains Wednesday. The franc has risen more than 25 percent against the dollar this year. The dollar was worth 0.7296 franc at midday Wednesday from 0.7141 late Tuesday.

Traders consider the Japanese yen "safe," despite Japan's troubled economy, because Japanese investors hold much of the country's massive public debt. That lessens the risk of a financing crisis. Meanwhile, Switzerland has acted as a European haven for investors wary of the euro and the debt loads of countries within the 17-nation euro bloc.

The dollar is the world's reserve currency and the U.S. is the world's largest economy. But the dollar's appeal has dimmed on concerns about debt and slow growth.

Elsewhere, the British pound slid to $1.6160 from $1.6220, while the dollar dipped to 99.06 Canadian cents from 99.38 cents. The Canadian currency had been stronger earlier in the day, with the dollar touching below 98 Canadian cents in overnight trading.