The dollar sank to an all-time low against the Swiss franc and a four-month trough versus the yen on Friday as weak data on U.S. economicgrowth ignited fears the economy could slip into another recession.

Debt worries on both sides of the Atlantic prompted investors to seek refuge in the franc and yen, traditional safe havens. However, the greenback gained against commodity-linked currencies that typically struggle when there is heightened risk aversion, such as the Australian, Canadian andNew Zealand dollars.

Euro-sovereign debt fear is again dominating this mornings market. Moodys has placed Spains Aa2 rating on review fora possible downgrade and has threatened to lower the ratingson four Spanish banks. Arguably not in the Greek boat just yet, Spanish 10-year yields have backed up +60bp so far this month. Once the market begins to lose confidence, yields creep much quicker, just look at Italy thisweek, surging Italian yields on speculation that Tremonti may quit.

A lackuster Italian bond auction helped spark a flight out of the euro, even as stalled U.S. debt negotiations continued to loom large over the dollar.

The single currency had trod water throughout Asian hours and for much of the European morning with traders unwilling to place bets ahead of vote by the House of Representatives on the Republicans’ revamped deficit-reduction plan.

But peripheral bond spreads widened following the Italian bond auction, which saw Italy’s funding costs surge. With currency traders once again taking their cue from the bond markets, the euro caved into selling pressure and it fell to the day’s lows against other major currencies.

According to the data by the US Commerce Department the US economy grew at a slower pace than expected in the second quarter of2011. U.S. gross domestic product grew at a 1.3 percent annual rate for the second quarter of 2011.Most economists had predicted a somewhat more robust, 1.9 percent growth in GDP.