Dollar Falls to 4-Month Low Versus Euro on U.S. Credit Outlook

May 22 (Bloomberg) -- The dollar fell to a four-month low against the euro and dropped versus the yen on speculation the U.S. government’s creditworthiness is weakening, sapping demand for the greenback.

The yen advanced to a nine-week high versus the dollar after Japanese Finance Minister Kaoru Yosano said the government isn’t planning to intervene in the foreign-exchange market. The dollar headed for its biggest weekly loss in two months versus the euro after Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. will “eventually” lose its AAA rating.

“We’re seeing a breakdown of the correlation of risk appetite and the dollar,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “A lot of Treasuries are held by foreign investors and any concern about the value of U.S. debt will have a massive impact on dollar sentiment.”

The dollar declined to $1.3926 per euro as of 9:25 a.m. in Tokyo, after reaching $1.3941, the lowest since Jan. 5. The U.S. currency has slumped 3.2 percent this week, the biggest drop since the five days to March 20.

The yen rose to 94.16 per dollar, after climbing to 93.87, the strongest since March 19. Japan’s currency traded at 131.08 per euro from 131.15.

The yen gained for a fourth day versus the greenback after Yosano said the “government isn’t considering currency intervention at this point.” Policy makers haven’t fully analyzed why the yen is gaining, he said at a press conference in Tokyo.

‘Dollar Weakness’

“We are seeing the appreciation of the yen, but mainly because of the negative views on the U.S. economy,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “It would be hard for the Japanese government to change the direction of the market because it’s more of a dollar-weakness issue rather than a yen-strength issue.”

The administration of President Barack Obama will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc. The U.S. Treasury reported the first budget deficit for April in 26 years, recording a $20.9 billion shortfall.