The dollar withstood a downgrade of U.S. debt on Monday, as traders flocked to the relative safety of the world’s de facto reserve currency.
Gold prices surged above $1700 an ounce to its highest ever, boosted by its safe haven appeal. Conversely, equity markets were bludgeoned around the world amid mounting fears of another global recession.
Friday evening in New York, S&P downgraded U.S. sovereign credit rating by one notch to ‘AA+’ from ‘AAA’ with a negative outlook. The country had enjoyed the pristine triple A rating for the last 70 years.
The S&P move, which came on the heels of this month’s eleventh-hour compromise on the nation’s debt ceiling, was harshly criticized by Treasury Secretary Timothy Geithner.
“They’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from (last week’s) budget agreement,” Geithner said.
Analysts say that European powerhouses Germany and France may be next to suffer credit downgrades. The two nations may be on the hook for Spain and Italy, whose borrowing costs have spiked to unsustainable levels in recent weeks.
The European Central Bank moved to buy Italian and Spanish bonds and analysts say they may need to print more currency, weighing on the value of the euro.
With Europe in the cross-hairs, the dollar edged higher versus the euro, rising to $1.4190 before leveling off.
The dollar jumped to its highest level since March versus its Canadian counterpart, coming within a penny of parity. The petro-linked loonie was trashed as commodities prices fell. Crude oil slipped toward $83 a barrel.
On the other hand, the dollar drifted lower versus the yen, slipping to Y77.55. Last week’s intervention to weaken the yen appears to have failed, as the dollar remains near a recent record low of Y76.28.
And the dollar extended its record low versus the Swiss franc, falling below CHF 0.75 for the first time ever.