NEW YORK The euro plunged to a session low against the dollar on Wednesday after Moody's cut Greece's credit rating by three notches, citing a growing risk that the government will fail to stabilize its debt position without a restructuring.
Optimism that Greece will avoid restructuring its massive debt load initially supported the euro, driving it to a four-week high against the dollar until the Moody's downgrade.
The dollar skidded to an all-time low against the Swiss franc on Wednesday after poor manufacturing and employment data stoked expectations that U.S. interest rates will remain low for longer than markets have expected.
"I haven't seen anything that suggested people were wed to their euro position, so we've seen a natural pullback after going above $1.44," said Michael Woolfolk, senior currency strategist at BNY Mellon. "Sentiment was driven last week by worries about Greece but this week is being driven by negative news on the U.S. data front. It comes down to a 'least ugly' contest between the euro and dollar."
The euro hit a four-week high of $1.4459 on electronic platform EBS but then fell as low as $1.4321.
Moody's downgraded Greece's ratings to the extremely speculative level of Caa1, seven notches into junk territory, from B1. The outlook on the new rating is negative, in a sign that another downgrade is likely in the short-to-medium term.
In late afternoon New York trade, the euro was down 0.5 percent at $1.4386. A UK trader said there was protective selling ahead of $1.4455 barriers, with more sell orders toward $1.4480 ahead of huge barrier option at around $1.4500.
Sources close to talks between Athens and inspectors from the European Commission, European Central Bank and IMF said they expected the latest review of Greece's fiscal progress to be completed by Friday.
A source told Reuters on Wednesday that whether Athens gets the fifth, 12-billion-euro tranche of aid under its 110-billion-euro EU/IMF bailout will depend on a meeting of senior EU finance officials under way in Vienna and also on a meeting of euro zone finance ministers to be held soon.
The euro was dented after German newspaper Frankfurter Allgemeine Zeitung said it is now considered certain that the IMF will not pay its share of a fifth tranche of aid to Greece at the end of June. It did not cite any sources.
Wednesday's private payrolls data, showing U.S. private employers added only 38,000 jobs in May, hints at a weak U.S. Labor Department nonfarm payrolls report for May on Friday, a key monthly driver of financial markets given jobs growth is one of the Federal Reserve's two mandates.
Separate data showed output in the manufacturing sector slowed to its lowest since 2009.
Yields on benchmark 10-year U.S. Treasury debt, the favorite asset of investors looking for a safe place to store cash in tough times, hit lows under 3 percent.
The Swiss franc benefited from its safe-haven appeal and from upbeat readings on Swiss manufacturing and retailing.
The dollar fell against the franc to record low of 0.8383 and was last down 1.2 percent at 0.84358 francs.
The euro also hit a record trough versus the Swiss currency at 1.2079. It last traded at 1.2082, down 1.7 percent.
Against the yen, which also benefited from its safe-haven appeal, the dollar was down 0.7 percent at 80.94 yen.
"Economic indicators continue to show the economy is reentering a downward spiral," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
"Beginning with housing numbers, joined by local manufacturing data and now today with employment numbers, we believe the U.S. economy is hitting the brakes at exactly the wrong time for the Federal Reserve," he said. "The USD has no choice but to weaken given exports are the only bright spot in the U.S."
(Reporting by Nick Olivari; Additional reporting by Steven C Johnson and Julie Haviv; Editing by James Dalgleish)