The euro fell against the dollar and hit a record low versus the Swiss franc on Wednesday after Moody's said it may downgrade Spain's debt rating, refocusing attention on contagion risks from the eurozone crisis. The Swiss currency gained as worries about debt problems in some European countries encouraged investors to reduce exposure to riskier eurozone assets and seek safer alternatives.
Moody's put Spain's Aa1 ratings on review for a possible downgrade, citing concerns about its mounting debt and 2011 funding needs, though it did not believe Spain would need an EU bailout, as Greece and Ireland have. Contributing to the euro's fall, the dollar firmed after upbeat economic data lifted US bond yields, enhancing the appeal of US assets.
Concerns lingered, however, that US fiscal problems could worsen due to a proposed extension to tax cuts even if the move helps the economy. Traders said that for some investors this made the Swiss franc a more attractive safe-haven asset than the dollar.
"The US story is still very important, and the extension of the Bush tax cuts has enhanced the Swiss franc's safe haven status," said Stephan Maier, currency strategist at Unicredit in Milan. The euro was down 0.3 percent against the dollar at $1.3351, off an earlier low of $1.3285 where traders reported sovereign demand for the single currency.
The euro was down 0.2 percent at 1.2814 Swiss francs, having hit a record low of 1.2758 on trading platform EBS. "There is an unwillingness among investors to hold riskier eurozone bonds over the year end so they are selling and going into Swiss francs," said Carl Hammer, currency strategist at SEB in Stockholm.
The dollar gained 0.2 percent against a basket of major currencies to 79.530, moving away from a three-week low of 78.819 plumbed on Tuesday. The dollar rose 0.2 percent to 83.82 yen while the higher-yielding Australian dollar fell 0.6 percent to $0.9928, hurt by risk aversion as stocks and commodity prices fell.
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