The euro fell 0.7% versus the dollar setting a seven-week low. The loss widened following Standard & Poor’s downgrade of Belgium’s credit rating to AA from AA+, which came after an already negative news-filled day. In the European session, the euro tumbled after a poor Italian bond auction sent Italy’s bond yields to new euro-era highs. Meanwhile a Reuters report said that Greece is demanding private investors accept larger losses on their sovereign debt than the 40% percent initially agreed on. EURUSD had retraced to 1.3296 in the early North American session but fell after the Belgium downgrade news to 1.3220. On the week euro declined 2.4% versus the dollar.
The US dollar Index rose to its strongest level in almost seven weeks due to risk aversion pushing investors to the safe haven and liquid greenback as they unwind riskier assets. The dollar index which tracks the greenback against a trade-weighted basket of six other currencies, rose 0.7% to 79.688 from 79.151.
The British pound rose 0.2% against dollar in early New York trading to trade at $1.5517only to fall back down to 1.5432 after the bad news from Europe dampened sentiment again.
The dollar rose 0.9% versus the Japanese yen on the day to peak at 77.78 yen in the US session. Yen was weaker today after comments from Japanese Finance Minister Azumi who said that he would not hesitate to intervene again in order to curb yen strength.
Dollar rose against the Swiss franc to hit a near eight-month high. USDCHF rose to 0.9329, its highest since April 1. Speculation has grown that the Swiss National Bank may raise the ceiling for euro/Swiss franc from the current 1.20 level to curb strength in its currency.
The Canadian dollar weakened the most in more than seven weeks against its US counterpart as record Italian borrowing costs spooked investors that the debt crisis in Europe will affect global growth and consequently affect the demand for commodities. The Canadian dollar is a commodity linked currency since Canada is a major oil exporter and so is sensitive to changes in oil prices. USDCAD rose to a high of 1.0522 and retraced to correct before bouncing back up to 1.0513.