Dollar, euro underperform in London

The dollar fell to a four-month low against the yen and hovered near record lows versus the Swiss franc on Friday, while the euro came under fresh pressure as debt jitters on both sides of the Atlantic drove edgy investors towards safe-haven currencies.
US authorities appeared as ever from reaching a cross-party compromise to raise the debt ceiling, while eurozone concerns grew on talk Greece might miss its next loan tranche payment and a Moody's warning that it might downgrade Spain. Widespread worries about sovereign debt underpinned safe haven assets and were expected to keep growth-linked currencies, including the Australian and New Zealand dollars, subdued.
The dollar was down 0.3 percent against the yen at 77.54 yen, having fallen to a four-month low of 77.448 on trading platform EBS. Japanese Finance Minister Yoshihiko Noda warned about the strong yen, saying he would consider how long Tokyo could ignore current exchange rate moves without acting. Expectations of possible intervention and position-squaring ahead of the weekend prevented a further rise in the yen. The dollar found support around 77.50 yen, with traders citing semi-official bids.
In the options market, dollar/yen implied volatilities climbed. One-month vols traded around 10.95 percent, up from 10.6 percent on Thursday. Dollar/yen risk reversals, a measure of the premium required to hold a put or a call option in a currency pair, also edged out in favour of yen calls with the one-month at 1.9 vols versus 1.8 Thursday.
The dollar was down 0.2 percent against the Swiss franc, another safe haven favourite, at 0.8000 francs, not far from an all-time low of 0.7990 francs. The euro fell sharply on a Dow Jones report the eurozone's EFSF bailout fund may not be in a position to lend to Greece in September. A Eurogroup spokesman later said Greece would get the money, and the tranche would be paid from bilateral loans rather than the EFSF.
The single currency hit a session low of $1.4229 triggering stop-loss orders around $1.4250, before recovering slightly to trade down 0.5 percent on the day at $1.4257. It also fell against the safe-haven Swiss franc to 1.1391 francs, within sight of a record low at $1.1365.
Earlier Moody's reminded markets that risks of contagion from the euro zone's sovereign debt crisis were far from over. It placed Spain's Aa2 credit rating under review for a possible downgrade, citing funding pressures and the precedent set by the bloc's second rescue package for Greece. Spanish and Italian bond yields rose and the euro suffered, although it got some support from a Greek finance ministry official who said China could provide loans to Greece to fund government bond buy-backs.
That comment drew a sceptical response from some in the market. With investors less willing to take on risk due to the euro zone and US debt problems, the recently outperforming Australian and New Zealand dollars fell prey to profit-taking. Both currencies, which this week hit multi-year highs, hovered near session lows with the Aussie trading down at $1.0932 and the kiwi 0.7 percent lower at $0.8651.