The dollar hit a record low against the Swiss franc and a four-month low against the yen on Wednesday and was poised for further losses as talks aimed at averting a US debt ratings downgrade or default remained deadlocked. With Democrat and Republican lawmakers still unable to agree on a plan to raise the government's $14.3 trillion debt ceiling before an August 2 deadline, the dollar stayed close to a near three-month low versus a currency basket.
The Swiss franc and yen gained as investors sought perceived safer alternatives to the dollar, raising concerns the Japanese authorities may intervene to stem the yen's strength. The dollar fell to a four-month low of 77.57 yen, just shy of a reported option barrier at 77.50. It was last down 0.1 percent at 77.80 yen.
"The yen is one of the least ugly currencies at the moment," said Bank of New York Mellon analyst Neil Mellor, adding that Japan's substantial external assets and a relatively secure banking sector made the yen "a good bet". Against the Swiss franc, the dollar hit a fresh record low of 0.7996 on the EBS trading platform, while the Australian dollar surged 1 percent to a 29-year high of US $1.1081, helped by strong Australian inflation data.
The euro came off a three-week high on concerns a new Greek bailout plan agreed last week may not be sufficient to prevent contagion from the debt crisis to other larger eurozone economies, though it remained only a cent below the early July high around $1.4577. The euro was down 0.4 percent on the day at $1.4457, having earlier climbed to $1.4537. Traders cited offers in the $1.4550 to $1.4580 area and bids layered into $1.4450.
The euro's falls followed comments by German Finance Minister Wolfgang Schaeuble that Berlin was against giving the eurozone's rescue fund carte blanche to purchase bonds in the secondary market. The remarks pushed Spanish and Italian bond yields higher.
The drop in the euro helped push the dollar index off its lows. It was last up 0.3 percent at 73.697, off an earlier three-month trough at 73.421, though traders said it was likely to keep falling towards its post-Lehman low of 72.696 hit in May.