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CURRENCIES: Dollar Gains Amid Warning Of U.K. Downgrade

By Deborah Levine

The dollar held its ground on the euro and high-yielding currencies Tuesday, finding support as a rating agency's threat to downgrade the U.K.'s AAA rating spooked investors and increased the desire for the relative safe-haven status of the U.S. unit.

The dollar index (DXY), a measure of the greenback against a trade-weighted basket of major rivals, edged up 0.2% to 75.144. On Monday, the gauge notched a 15-month low.

The British pound was the session's big mover, selling off after David Riley, Fitch Ratings' co-head of global sovereign ratings, told Reuters in an interview Tuesday that the U.K. has the highest risk of major economies of losing its AAA status.

The language echoed a Fitch report from late July, but Riley's remarks proved enough to trigger a round of profit-taking a day after sterling rose to a three- month high against the dollar.

In recent action, the pound fetched $1.6710, down from $1.6763 in North American trading late Monday. The pound had slipped to a low near $1.6600 in earlier action.

The euro rose as much as 0.5% against the pound earlier on, but it recently traded up 0.2% to 89.62 pence.

"After yesterday's collapse, the U.S. dollar is consolidating a bit," said T.J. Marta, founder and chief strategist at Marta on the Markets.

The dollar stood at 89.80 Japanese yen, down from 90.06 yen late Monday.

The euro bought $1.4973, down from $1.4998.

The euro had traded above the $1.50 level but backed off when the German ZEW investor sentiment index posted a larger-than-expected July decline.

Also figuring in the foreign-exchange action, Japan's current-account surplus unexpectedly rose 0.2% in September compared to the same month last year, government data showed Tuesday.

The trend, however, of selling the U.S. currency short, which has been prevalent since March, remains firmly in place for the foreseeable future, some analysts say.

Despite Tuesday's gains against the euro and the pound in Asian trading, " there are few other games in town than USD [U.S. dollar] bashing and while intra-day volatility may remain high, there is probably a requirement for some divergent economic performances before the bearish USD trend is reversed," Soci& #195;©té Générale strategist Patrick Bennett wrote in a Tuesday note to clients.

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