Euro down on debt crisis, Swiss hits record highs

NEW YORK: The euro fell on Monday, hitting a record low against the Swiss franc and dropping against the yen on concerns the euro zone debt crisis will only get worse in the near term.

The dollar also hit a record low against the Swiss franc as investors worried that there was little apparent movement by the US Congress in dealing with the nation's looming debt ceiling crisis. That concern eased somewhat after more positive comments from US Treasury Secretary Timothy Geithner about the prospects for a deal being reached but until the details are in place, it will continue to weigh on sentiment.

Italian and Spanish 10-year bond yields rose sharply while the cost of insuring peripheral euro zone debt against default soared to record highs on contagion risks and policymakers' failure to quickly resolve the debt crisis.

"There is still a great concern about the (euro zone) peripheral debt crisis and in the US we have our own issues with the consensus the US is on downgrade watch," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "The yen and the Swiss franc are benefiting as safe havens more than the dollar."

German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece. Officials proposed a range of schemes for the European Financial Stability Facility to finance a buy-back or a swap in which private owners of Greek government bonds would accept cuts in the face value of their holdings.

The euro fell sharply against the Swiss franc early in the global trading day to change hands at a record low of 1.1365 on EBS.

The pair bounced to 1.1496 francs, helped by German bank buying, but was still down 0.4 percent for the day. Traders said the franc's rise in Asian trade may have been exacerbated by thin conditions owing to a Japanese holiday.

The franc continues to be the G10 currency of choice for investors and traders seeking liquidity and relative safety from concerns that the euro zone's sovereign debt crisis could spread to countries such as Spain and Italy.

The euro was down 0.6 percent versus the dollar on the day at $1.4040, off an earlier low of $1.40145. Technical analysts said next support was the 200-day moving average currently at $1.39121. The euro fell over one percent against the low-yielding yen to 110.66 yen and last traded around 111.35 yen.

The dollar also fell to a record low of 0.8034 francs on EBS. It rebounded to 0.8173 as some dealers covered their short positions, but with the US grappling with its own debt issues, traders said any bounce in the greenback may prove fleeting.

Political negotiations over the US debt ceiling are running dangerously close to an Aug. 2 deadline after which Washington will be unable to pay its bills. "Despite what you hear, people are moving closer together," US Treasury Secretary Timothy Geithner said on CNBC television on Monday. "You have seen the leadership of the Republican party ... take default off the table. That's encouraging," he said.

Republican and Democratic senators sought on Sunday to craft a plan that could avert a government debt default should the talks remain in stalemate.

"The Treasury Secretary speaking early today was trying to calm things down," said John Doyle, strategist at Tempus Consulting in Washington. "The Swiss franc continues to be the big winner until there is fear of intervention but the dollar is taking its role as a safe haven."

The euro did pare losses after data showed foreigners bought fewer long-dated US securities in May and, including bills and other short-term instruments, were net sellers of all US assets for the first time in 11 months.

"With the focus on the debt crisis, the question is if investors have any reason to buy US debt securities," said Kathy Lien, director of currency research at GFT Forex in New York. The data indicates "even in May, investors were shunning US dollars."

Copyright Reuters, 2011