Dollar Declines Amid Speculation Debt Accord May Damp U.S. Economic Growth

The greenback fell as investors also speculated the accord won’t be enough to avoid a rating downgrade. The yen dropped as stocks rose amid bets that chances of a U.S. default were lower and authorities said currency movements haven’t reflected Japan’s fundamentals. New Zealand’s dollar reached a record after data showed China’s manufacturing grew more than forecast. The Swiss franc reached records versus the euro and dollar.

“The fact the U.S. has gotten itself into a difficult situation where it has to come up with savings and spending cuts raises serious concerns about the U.S. growth outlook for the next few years,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “The markets may also be disappointed that this package doesn’t deal with the long-term structural issues and what that might mean for the U.S. credit outlook.”

The dollar was little changed at 76.73 yen at 9:49 a.m. in New York, from 76.76 on July 29, after touching 76.65, the lowest since reaching a post-World War II record of 76.25 on March 17. The greenback gained 0.3 percent against the euro to $1.4355, from $1.4398. New Zealand’s dollar reached 88.44 U.S. cents before trading at 87.87, up 0.1 percent.

Sterling fell 0.4 percent to 87.96 pence per euro and lost 0.4 percent to $1.6358 as U.K. manufacturing unexpectedly shrank the most in more than two years in July.

The Swiss franc gained 0.7 percent to 78 centimes per dollar and climbed as much as 1 percent to 1.1199 per euro.

U.K. Manufacturing

A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 49.1, the lowest since June 2009, from 51.4 the previous month, according to an e-mailed report in London today.

Japan’s currency also weakened against most of its major peers amid speculation the government and the central bank will take steps to halt gains in the yen that threaten the nation’s export-led recovery. Finance Minister Yoshihiko Noda said today that he’s watching currency markets closely and that recent movements haven’t reflected Japan’s economic fundamentals.

The yen has gained 3.5 percent in the past month against a basket of nine developed nation currencies, according to the Bloomberg Correlation-Weighted Currency Indexes. The franc has surged 7 percent and New Zealand’s dollar has risen 4.8 percent. The dollar has fallen 2.2 percent.

Treasury Secretary Timothy F. Geithner has said the U.S. will run out of options to prevent a default by tomorrow if the $14.3 trillion debt limit isn’t increased.

Houses to Vote

Obama said from the White House yesterday that leaders of both parties in the U.S. House and Senate had approved an agreement to raise the borrowing cap by $2.1 trillion and cut the federal deficit by as much as $2.5 trillion over a decade. It now must be approved by both houses. The Senate is scheduled to vote at 2 p.m., while a vote by the House remained to be scheduled.

The Standard & Poor’s 500 Index rose 0.7 percent, and the MSCI World Index advanced 0.6 percent.

A report from The Institute for Supply Management may show an index for U.S. manufacturing fell to 54.5 last month from 55.3 in June, according to the median estimate of economists surveyed by Bloomberg News.

The New Zealand dollar’s high against its U.S. counterpart was the strongest since the currency was freely floated in 1985. It closed at 87.93 on July 29. Australia’s dollar rose 0.3 percent today to $1.1030, from $1.0993.

Canada, Norway

The Purchasing Managers’ Index for China’s manufacturing was at 50.7 in July, compared with 50.9 in June, the China Federation of Logistics and Purchasing said in a statement today. That was more than every forecast in a Bloomberg News survey of 13 economists. China is Australia’s largest trading partner and New Zealand’s second-largest export destination.

The Canadian dollar strengthened against its U.S. counterpart, while Norway’s krone rose versus most major peers as crude oil jumped from a two-week low. Crude is Canada’s biggest export, and Norway is the world’s seventh-largest oil exporter.

Crude for September delivery rose as much as 3 percent to $98.60 a barrel in New York. The krone appreciated 0.3 percent to 5.3591 per dollar. The Canadian currency advanced 0.2 percent to 95.29 cents per U.S. dollar. Canadian markets are closed today for the Civic Day holiday.

The euro has dropped against most of its major counterparts in the past three months on concern the debt crisis triggered by Greece is spreading to bigger nations, threatening the region’s economic recovery.

Moody’s Investors Service said on July 29 that it’s reviewing Spain’s Aa2 credit rating and that a cut would probably be “limited to one notch.”

(Bloomberg News)

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