The U.S. dollar remained on the defensive in early Asia-Pacific having hit record lows on the safe-haven Swiss franc as the market awaited the latest attempt by President Barack Obama to break the deadlock on debt talks.
Obama is due to address the nation at 0100 GMT and is expected to warn that the failure of Congress to take steps to lift the debt ceiling would severely harm the United States.
Yet, there was no sign of a mass exodus from U.S. assets with many assuming a deal would be done at the 11th minute, or that Treasury could avoid a default, at least for a while, even if the debt ceiling was not raised by August 2.
"The market is 99.9 percent certain that some sort of agreement will be reached...But the closer they get to the Aug. 2 deadline, the worst the panic is likely to be," said David Scutt, a trader at Arab Bank Australia.
The stalemate kept equity markets under moderate pressure and pushed up demand for safe-haven assets with gold hitting record highs above $1,622 an ounce on Monday.
The Swiss franc was among the biggest stars, pushing the dollar to an all-time low of 0.80210 francs on trading platform EBS , before steadying at 0.8059. Bids near 80.0 kept the currency above this level, according to a trader.
The euro also slid to a one-week low of 1.1583 francs, dropping as much as 1.7 percent.
Against the yen, the greenback dived to a four-month trough at 78.02 yen with only the threat of Japanese intervention keeping it above 78.00. It last traded at 78.28.
Japanese Finance Minister Yoshihiko Noda on Tuesday reiterated his warning to markets about pushing the yen too high, saying he was closely watching foreign-exchange moves.
Debt crises on both sides of the Atlantic kept the euro in a tight range around $1.4320-$1.4400. It last traded at $1.4360. Despite the new bailout introduced by the European Union last week, there are still unanswered questions on how the group plans to implement the measures.
"The euro lost ground, as concerns about implementation, as well as the effective capability of the EFSF in dealing with, in particular, any serious eruption of stress in Italian bond markets, remain evident in some quarters," wrote an FX strategist at BNP Paribas.
Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.
While the U.S. debt deadlock left some risk assets a little softer, the Australian and New Zealand dollars stayed firm. The kiwi hit a fresh 30-year peak of $0.8678 overnight, before edging back to $0.8628.
In Australia, markets will focus on the central bank governor's speech later on Tuesday which may give insights on the next interest rate move.
The market has been pricing in a rate cut by year-end so is vulnerable to any hint of hawkishness from the governor.