The franc and yen rose against most of their counterparts as Republicans prepared to force action on a shorter-term extension of the U.S. debt limit than President Barack Obama seeks, boosting demand for the currencies as havens. Gains by the yen were limited on speculation Japan will intervene in the foreign-exchange market to stop its rise. The Australian dollar fell as stock losses damped demand for higher-yielding assets.
"U.S. dollar down, Swiss franc higher is the most obvious trade on the back of a disappointment," said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia's second-largest lender. "A half-baked answer would probably also be disappointing to the markets. They're looking for a solution that's not just short-term but something long-term and that's what the ratings agencies have said they want."
The dollar fell to 81.36 Swiss centimes as of 10:35 a.m. in Tokyo from 81.92 last week, and reached a record low 80.33 centimes on July 18. The greenback fetched 78.37 yen from 78.54 after touching 78.12 yen, the least since March 17. The U.S. currency dropped to $1.4395 versus the euro from $1.4360 last week. The yen was at 112.83 per euro from 112.77.
The franc has gained 0.7 percent today, making it the best performer among 10 major-economy currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen has risen 0.1 percent, while the dollar is down 0.1 percent.
Short-Term Debt Increase
House Speaker John Boehner plans to press ahead with a shorter-term increase in the U.S. debt limit than President Barack Obama has requested, he told lawmakers, defying a veto threat and signaling continued stalemate in the U.S. Congress as time runs short for a deal.
Boehner told rank-and-file Republicans during a conference call that they needed to pull together as a team to block Obama. His remarks were described on condition of anonymity by a person familiar with the discussion.
Obama would veto a deal to raise the debt ceiling if it doesn't extend the limit into 2013, White House Chief of Staff Bill Daley said in an interview on NBC's "Meet the Press."
Downgraded Anyway
"The U.S. should avoid default but may get downgraded by the ratings agencies if the White House and Congressional Republicans are unable to agree on significant medium-term fiscal tightening," Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG, wrote in a note to clients.
Treasury officials project the debt limit will be exhausted Aug. 2.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.1 percent to 74.112. The index reached 73.889 on July 21, the lowest since June 9.
America may lose its AAA rating as early as August because of the risk that Congress will agree to limited reductions in the budget deficit, on the order of $1 trillion to $1.5 trillion, rather than the $3 trillion to $4 trillion recommended by Standard & Poor's and Moody's Investors Service, according to Mohi-uddin.
"While clearly a blow to U.S. prestige, the impact on the dollar may be muted," he wrote. "Central banks will not sell Treasuries given their need to hold foreign-exchange reserves in liquid assets."
50% Held Overseas
Investors outside the U.S. own $4.51 trillion in U.S. Treasuries, or about 50 percent of the marketable government debt outstanding, according to the Treasury Department.
A ratings downgrade would "modestly raise" the government's borrowing costs, S&P said. If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecasts short-term interest rates would rise 0.50 percentage point and long-term interest rates by 1 percentage point.
Gains in the yen were limited after Kyodo News reported that Japanese Finance Minister said yesterday monetary authorities "will take resolute actions when necessary" on the yen. He said today he's watching developments in the U.S. debt situation.
"Policy makers have to signal a possible intervention, which is likely to be used to adjust positions" to buy back the dollar and sell the yen, said Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. "Yet, that won't be powerful enough to create a trend."
Group of Seven nations jointly sold the yen in March to combat "excess volatility and disorderly movements in exchange rates," they said. Japan's Finance Ministry sold 692.5 billion yen ($8.8 billion) that month in its first currency intervention since September.
Australia's dollar dropped as the MSCI Asia Pacific Index lost 0.7 percent and Standard & Poor's 500 futures expiring in September declined 0.8 percent.
The so-called Aussie fell 0.4 percent to 84.89 yen. The so- called Aussie traded at $1.0828 from $1.0851.
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