Dollar rises sharply

The US dollar rose sharply on Monday against higher-yielding currencies as deteriorating fiscal outlooks in the United States and Europe prompted investors to cut exposure to riskier assets. A sell-off in US stocks and a warning from China's vice premier on the global economy added to pressure on growth-linked commodity currencies such as the Australian and New Zealand dollars.
A US congressional "super committee" is expected to formally announce on Monday that its three-month effort to forge a $1.2 trillion deficit-reduction plan has failed. The pressure on debt issued by the eurozone's troubled economies remains unabated, with yields on Spanish, Italian and Belgian bonds all rising. In a sign of the crisis spreading to countries once seen as safe, French yields also rose after Moody's warned about the country's credit rating.
"Overall, it underscores concerns about debt on both sides of the Atlantic," said Joe Manimbo, senior market analyst at Travelex Global Payments in Washington. "That's really keeping those higher-yielding currencies under pressure." The Australian dollar fell as low as 0.9809 on Reuters data, and was last at $0.9823 down 1.75 percent.
The New Zealand dollar slipped 1.19 percent to $0.7464, after earlier dropping to 0.7449, the weakest since March. The US dollar earlier climbed to a six-week high against a basket of major currencies as investors flocked to the safe-haven greenback. It later pared gains. The dollar index rose as high as 78.516, its highest since October 10, and was last up 0.19 percent at 78.213. Some analysts said the political deadlock increased the chances of a downgrade of US credit ratings and may eventually weigh on the dollar.
"If the United States fails to reach agreement and we assume the spending cuts will still be delivered, that would be acceptable to the ratings agencies," said Adam Cole, global head of currency strategy at RBC.
The greenback's strength against high-yielding currencies was not matched against the euro or yen. The limited gains demonstrated a breakdown in the strong correlation that has existed with US equities. "I think people are perceiving that (super committee failure) is dollar negative and is somehow growth negative and therefore puts more pressure on the Fed to do something," said Robert Sinche, global head of currency strategy at Royal Bank of Scotland in Stamford, Connecticut.
The euro shed 0.1 percent to $1.3496. The common currency had earlier hit a session low of $1.3429 on Reuters data, nearing a five-week low of $1.3420 set last week. The latest IMM data show that speculators increased their bets against the euro last week to 76,147 contracts, the highest since late October. Against the yen, the euro hit a six-week low and was last flat at 103.89. The dollar edged up 0.04 percent to 76.94 yen, with gains capped by offers around 77 and hovering near its 50-day moving average of 76.934.