Forex - Greenback smashed lower by Moody's downgrade warning

Investing.com - The U.S. dollar plunged to multi-month lows against all of its major brethern  Tuesday, after rating’s agency Moody’s warned that it may cut the U.S.‘s credit rating, while expectations for more easing from the Federal Reserve also weighed.

During U.S.afternoon trade, the dollar fell to a four-month low against the euro, with EUR/USD rallying 0.71% to 1.2848.

The greenback extended losses after Moody’s announced that it could downgrade the U.S’s triple-A rating if budget negotiations for 2013 do not result in policy measures which will reduce the country’s debt.

The greenback has come under selling pressure in recent days amid speculation that the U.S. Federal Reserve may implement a third round of quantitative easing after its upcoming policy meeting, which concludes on Thursday.

The euro was underpinned by expectations that the German constitutional court would find that the euro zone’s new bailout fund, the European Stability Mechanism, was not a violation of the German constitution in a ruling to be delivered on Wednesday.

The greenback hit a fresh four-month low against the pound, with GBP/USD climbing 0.54% to 1.6077.

In the U.K., official data showed that the goods trade deficit narrowed unexpectedly in July, as exports to countries outside of the European Union jumped to a record high.

The Office for National Statistics said the goods trade deficit contracted to GBP7.14 billion in July, from GBP10.06 billion in June, compared to expectations for a deficit of GBP11.8 billion.

Elsewhere, the greenback hit multi-month lows against the yen and the Swiss franc, with USD/JPY dropping 0.63% to 77.78 and USD/CHFfalling 0.71% to 0.9396.

The greenback was sharply lower against its Canadian, Australian and New Zealand counterparts, with USD/CAD shedding 0.61% to trade at 0.9716, AUD/USD rallying 1.02% to 1.0439 and NZD/USD surging 1.11% to 0.8178.

Canada posted a trade deficit of CAD2.3 billion in July official data showed earlier, compared to expectations for a deficit of CAD1.0 billion.

However a separate report showed that Canadian housing starts rose to 224,900 units in August from 208,000 the previous month, defying expectations for a decline to 200,000.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.72% to 80.00.