The dollar fell broadly on Tuesday, hitting a record low against the Swiss franc as investors fretted politicians would fail to strike a deal to raise the US debt ceiling and risk triggering a default that could lead to further dollar losses. The greenback fell as low as 0.7997 francs as options-related barriers were taken out at the psychologically key 0.8000 level, and traders said the dollar could fall "another 2-3 big figures" if US lawmakers are unable to agree on raising the debt ceiling by an August 2 deadline.
A warning from President Barack Obama that failure to up the US borrowing limit would severely hurt the nation sparked dollar selling, as the shift in focus to US debt issues tarnished the dollar's safe-haven status. In addition to its losses versus the Swiss franc, the dollar suffered against the yen, another safe-haven rival. It fell to 77.88 yen, its weakest since mid-March, when major central banks acted in concert to stem the yen's rise.
It pulled back to 78.07 yen as movements calmed in European trade following a volatile Asian session. Given deteriorating dollar sentiment, traders in London said the US currency could test 76.25 yen - an all-time low hit earlier this year - in the next week.
The dollar's slide has raised concerns Japanese authorities may enter the market to stem yen strength and sources said policymakers are becoming increasingly alarmed by persistent yen rises.
The dollar traded at 0.8031 francs, trimming losses but still down 0.4 percent on the day. The euro traded at $1.4482, having rallied 1 percent on the day to a three-week high around $1.4522 in earlier trade. Against a currency basket, the dollar fell 0.6 percent to 73.638. A fall below 73.506 would mark its lowest in nearly three months. The dollar also depreciated against commodity currencies considered to be higher-risk. The New Zealand dollar clocked a post-float high of US $0.8743, while the Australian dollar rallied to US $1.0955, its strongest since May. The greenback also fell to a 3-1/2 year low of C$0.9419 versus the Canadian dollar.