The U.S. dollar weakened for a third day after Moody’s Investor Service put the U.S. under review for a credit downgrade late yesterday. The U.S., rated Aaa by Moody’s since 1917, was put on review for the first time since 1995 on concern the nation’s debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes, even though the risk is low, Moody’s said yesterday. U.S. President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled. The greenback was also under pressure after Federal Reserve Chairman Ben Bernanke said the central bank is prepared to take additional action, including buying more government bonds, to boost the economy. As a result, Gold rose to a record as it continued its role as a hedge against economic uncertainty, putting downward pressure on currencies such as the Kiwi dollar. Another safe-haven, the Swiss franc rose to a record high against the U.S. dollar and the Euro. Despite a rise in the price of commodities, the South African rand fell to its lowest level in a week on concern strikes by steel, engineering and energy workers will slow growth in Africa’s biggest economy. Meanwhile, the economic docket showed that the number of Americans filing for first time claims for unemployment benefits dropped to the lowest level since April. However, sales at U.S. retailers stagnated in June as rising unemployment held consumers back. The 0.1% increase reported by the Commerce Department in Washington today compared with the median forecast of a 0.1% drop. Also, U.S. wholesale costs dropped more than forecast in June, restrained by the biggest decrease in energy prices in two years. The 0.4% decline in the producer-price index followed a 0.2% gain in May, giving the Fed the scope to keep interest rates at an all-time low for an extended period of time.
The Euro rose against the U.S. dollar after Moody’s put the world’s largest economy under review for a credit downgrade. However, the common currency retraced some of its gains as Italian borrowing costs rose at a debt sale today. At the same time, European consumer prices rose less than forecast in June as European Central Bank policy makers prepare to raise borrowing costs further to fight price pressures. The inflation rate in the 17-nation euro region remained at 2.7% for the second month, exceeding the ECB’s 2.0% ceiling for a seventh straight month.
The Japanese yen held recent highs versus the U.S. dollar, but reversed modestly against its other trading partners amid speculation the nation may intervene in markets to limit the currency’s gains. Japanese Finance Minister Yoshihiko Noda said it would be “problematic” if recent one-sided currency movements continue. Noda repeated today he will continue to closely watch the market. The comments have fueled concern Japan will sell yen to halt it’s gains.
The British pound remained largely unchanged versus the U.S. dollar overnight. The Sterling has managed to gain against the greenback during the week despite a string of relatively weak data. Reports this week showed inflation unexpectedly slowed and retail sales slide in June while jobless claims rose, prompting investors to reduce bets that the Bank of England will increase rates from a record low, even as inflation runs at more than twice its 2.0% target.
