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Dollar drops as Moody's warns US
The dollar fell this morning, sending gold to a record high and yields on Japanese government bonds to eight-month lows, after Moody's warning that the United States may lose its top-notch credit rating spurred a rush towards safe-haven assets.
A standoff in the U.S. Congress over raising the country's debt ceiling while disagreements over a plan to reduce the ballooning deficit prompted the rating agency to place its Aaa rating on review for a possible downgrade for the first time since 1996.
For markets, the stalled U.S. debt talks have added to worries that Europe's sovereign debt crisis was worsening. Meantime, euro zone leaders sought to break an impasse on how and when to grant Greece urgent aid.
The risk of a lower credit rating for the U.S. overshadowed Federal Reserve Chairman Ben Bernanke's suggestion, in testimony to Congress, that the central bank could provide more stimulus if the economy weakens further.
The potential for another round of asset purchases by the Fed, known as quantitative easing, and the Moody's warning added up to a double whammy for the dollar which slid to a four-month low of 78.48 against the yen.
The Moody's warning has intensified pressure on U.S. lawmakers to scramble together a deal to avert a debt default.
Gold powered to a fresh record on course for a ninth successive day of gains, matching a similar winning streak in 2006.
