The dollar rallied on Wednesday, cushioned against declines by a lack of further news on US debt ceiling negotiations, though the uncertainty was expected to keep the rally short-lived. The dollar earlier fell to a record low against the Swiss franc and a three-week trough versus the euro. It recovered as investors locked in profits on short positions in the greenback this week.
Analysts said the dollar's outlook remained downbeat. Most market participants believed the deficit reduction proposals being discussed in Congress fall short of the budget cuts necessary to avert a US debt downgrade by ratings agencies. The euro was also pressured after Standard & Poor's cut Greece's sovereign credit rating further into junk territory, lowering it to CC from CCC, saying the European Union's proposed debt restructuring would put the country into "selective default."
"The dollar sell-off has come pretty far, pretty fast," said Jonathan Lewis, founding principal of the New York-based Samson Capital Advisers, with assets under management of $7 billion. In late afternoon trade, the dollar was up 0.1 percent versus the Swiss franc at 0.80224 franc, after earlier hitting a record low of 0.7996 on the EBS trading platform.
The Swiss franc, a traditional safe-haven, has been the main beneficiary of the dollar sell-off, and traders said the dollar could fall as low as 0.7600 franc in the near term. Analysts said the Swiss National Bank was unlikely to enter the market to weaken its currency despite its elevated levels.
The dollar also benefited from weakness in the euro, which came off a three-week high on concerns a Greek bailout plan agreed last week may not be sufficient to prevent contagion from the debt crisis. The euro was down 0.9 percent at $1.43715, having earlier climbed to $1.45370. Traders cited support in the $1.43500-600 region and offers at the $1.44200-240.
The euro's earlier fall followed comments by German Finance Minister Wolfgang Schaeuble that Berlin opposed giving the eurozone's rescue fund carte blanche to purchase bonds in the secondary market. The euro also fell against the Swiss franc, going as low as 1.1503 Swiss francs, not far from the lifetime low of 1.1365 touched earlier in July on EBS.
The drop in the euro helped push the dollar index off its lows. It was up 0.8 percent at 74.072, off an earlier trough of 73.421, its lowest since early May. The dollar earlier fell to a four-month low of 77.570 yen, just short of a reported option barrier at 77.50. It was last up 0.2 percent at 78.021 yen. The record low in the pair was 76.250 hit in mid-March.
The Australian dollar, rose 0.6 percent to US $1.1019, after earlier touching a high of US $1.1081. Helped by strong Australian inflation data. the peak was the highest since December 1983 when it was first allowed to float freely. The New Zealand dollar also touched its highest against the US dollar since being allowed to float freely in March 1985 at $0.8766 early in the global day. But the New Zealand dollar declined a few hours ahead of a Reserve Bank of New Zealand decision on the official cash rate, currently at 2.5 percent. It was last down 0.2 percent at $0.8696.