Between rumbling about a new downgrade for Spain and the struggle in the U.S. to avoid default, neither the euro nor the dollar are looking good today.
Spain is back under the microscope at Moody’s as the rating agency worries there is no timetable for the European Union to start buying its members’ sovereign debt.
If Moody’s decides that the risks have expanded relative to Madrid’s progress toward improving its balance sheet, a downgrade to AA3 from AA2 could follow.
The news is putting the euro back on the defensive. The dollar is having its own problems.
Today the U.S. Treasury has to start talking about contingency plans if Congress fails to raise the federal borrowing limit by August 2.
Any news will probably come after the close. The details on which bills the government plans to pay, and which ones to skip, can only hurt sentiment on the dollar.
Standard & Poor’s already has the U.S. sovereign credit rating — AAA, the highest possible — on watch, noting that even if Congress makes a deal, a “credible solution” is required to avoid a downgrade.
The prospect of eroding credit on two continents has driven capital into the relative havens of the Japanese yen and the Swiss franc, or CHF.
Both currencies have touched historic highs against the dollar in particular, with the yen currently trading at 77.56 per dollar while one CHF is buying a record $1.24.
You can see the trajectory of the yen and franc by taking a look at the ETFs that mirror their movements, FXY and FXF, respectively: