The dollar sank to an all-time low against the Swiss franc and a four-month trough versus the yen on Friday as weak data on U.S. economic growth ignited fears the economy could slip into another recession.
Debt worries on both sides of the Atlantic prompted investors to seek refuge in the franc and yen, traditional safe havens. However, the greenback gained against commodity-linked currencies that typically struggle when there is heightened risk aversion, such as the Australian, Canadian and New Zealand dollars.
The dollar’s slide against the Swiss franc and yen accelerated after data showing the U.S. economy grew at a much weaker-than-expected rate in the second quarter. First-quarter growth was also revised sharply lower.
“The dollar is looking less and less attractive from a growth, fiscal and monetary perspective,” said Kathy Lien. director of currency research at GFT Forex in New York.
“The recovery has lost momentum, the U.S. is up to its neck in debt and the Federal Reserve is considering more stimulus.”
Analysts have said that even if a last-minute deal to lift the debt limit is struck before the August 2 deadline, a rating downgrade appears likely without a comprehensive plan to cut the deficit. A cut would raise U.S. borrowing costs, hurting an already weak economy, rattle investors and likely hurt the dollar.
The dollar fell to a record low of 0.78530 franc on trading platform EBS and was last at 0.78860, down 1.5 percent on the day. On the week, the dollar fell 2.8 percent and 6.1 percent in July, its worst monthly showing since December 2010.
The euro slid to record lows against the Swiss unit as well, to 1.12970 francs. It last traded at 1.1346 francs, down 1.2 percent. The euro on the week fell 3.1 percent and 6.9 percent this month, its worst monthly performance since June 2010.
The dollar was down 0.8 percent against the yen at 77.180 yen, having fallen to 77.010 on trading platform EBS, the lowest level since coordinated intervention to weaken the Japanese currency in mid-March. The greenback lost 1.3 percent this week and 4.2 percent for the month of July, its weakest level since December 2008. The record low for dollar/yen was 76.250.
U.S. authorities appeared as far as ever from reaching a cross-party compromise to raise the $14.3 trillion U.S. debt ceiling, while euro zone concerns grew on talk Greece might miss its next loan tranche payment and a Moody’s warning that it might downgrade Spain.
In early afternoon New York trading the euro was up 0.3 percent against the dollar at $1.4376.
“Both the euro and dollar have conflicting negative themes going on right now and I am unsure how things will play out,” said Win Thin, global head of emerging markets currency strategy at Brown Brothers Harriman in New York.
“One thing that I am sure of is that the franc and yen will continue to benefit from safe-haven flows as long as uncertainty persists in Washington and the euro zone.”
While America faces a potential downgrade of its debt for the first time in history, Europe continues to struggle to reconcile its structural imbalances and wider peripheral spreads should continue to pressure the euro.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Hay)