The dollar hit a record low against the Swiss franc and a four-month trough versus the yen on Thursday on expectations of further monetary easing by the Federal Reserve and a credit warning on US debt. Ratings agency Moody's issued a warning on the United States' credit rating just hours after Fed Chairman Ben Bernanke sent the dollar tumbling by suggesting to Congress that the central bank could provide more stimulus if the economy weakened further.
The dollar's slide against the yen raised the possibility of Japanese intervention, although many expect any such action is unlikely to have the blessing of other major central banks, like the co-ordinated action in March. The euro pared gains against the dollar after an Italian bond auction in which the Treasury had to pay the highest yields on record on 15-year debt.
It last traded flat on the day at $1.4181, but it was well off its four-month low hit earlier in the week on heightened concerns the Greek debt crisis was spreading to Italy, one of the eurozone's core economies. The dollar index was last down 0.1 percent at 75.11. Against the yen, the dollar was flat at 78.99 yen after hitting a low of 78.45. It spiked nearly 1 yen during Asian trade, fuelling speculation that Japanese authorities could be in the market, although traders cited heavy buying by a US bank.
Fellow safe-haven currency the Swiss franc hit record highs of 0.8080 francs versus the dollar and 1.1494 francs against the euro in Asian trade as investors sought refuge from US debt concerns and the eurozone debt crisis. The greenback pared some of those losses during the European session, last trading flat at 0.8149 francs, while the euro was also flat at 1.1560 francs. Investors are wary of going long on the common currency with the balance of risk tilted towards the downside as they await the results of eurozone bank stress tests on Friday.
The New Zealand dollar hit a 30-year high after better-than-expected economic data increased expectations of a rate hike before year end and was last up 0.5 percent on the day at $0.8424. One-month dollar/yen vols have picked up to trade around 10.20 percent versus 9.75 percent on Wednesday and risk reversals are showing a stronger bias towards yen strength.