The dollar rose on Wednesday, nearing a four-year high against the euro, on the perception that the U.S. Federal Reserve could raise interest rates sooner than later following recent healthy U.S. jobs data. In face of the dollar's overall strength, the yen failed to keep gains after credit rating firm Moody's upgraded its rating on Japan's foreign currency denominated debt to the highest level. At 0550 GMT, the dollar was around 105.95 yen , up about 0.2 percent from late U.S. levels but still down from a two-week high of 107.25 hit on Tuesday. The dollar briefly fell to around 105.35 yen from above 106 yen in a knee-jerk reaction to Moody's announcement that it had raised its rating to Aaa from Aa1, which came during lunch-time in Tokyo. But the U.S. currency bounced back as traders concluded the ratings upgrade was merely anecdotal evidence of an improving economy in Japan.
"The move is no more than an acknowledgement of improving Japanese economic fundamentals. I don't think it will have any influence in the market in the long term," said Junya Tanase, strategist at JPMorgan Chase. Moody's cited Japan's ballooning foreign reserves as a reason behind its upgrade. The reserves hit a record high $826.577 billion at the end of March due to Japan's aggressive intervention in the currency market. Moody's lifted only its foreign currency debt rating, which was of little importance to many traders since Japan does not have foreign currency denominated debt to speak of, and the rating will affect a mere $30 billion in government-guaranteed bonds.
DOLLAR KEEPS MOMENTUM
Although it had slipped after hitting a four-month peak against the euro in choppy trade on Tuesday, the dollar kept its strength on last week's upbeat reading for U.S. payrolls. "The U.S. payroll data had such a big impact," said Kikuko Takeda, market economist at Bank of Tokyo-Mitsubishi. The euro eased about 0.6 percent to $1.2060 from around $1.2135 in late U.S. trade, edging towards the four-month trough of $1.1980. The dollar's latest rally was sparked after the payroll figures showed more jobs were created in March than many in the market had expected. A sustained improvement in jobs data is seen key to the Fed raising its funds rate from a 46-year low of one percent, which would increase the allure of dollar-denominated assets for foreign investors. Hopes for higher U.S. rates were not dented by comments from St. Louis Federal Reserve Bank President William Poole, who said on Tuesday that job numbers beyond the March report were needed to confirm a positive trend in hiring. Expectations for rising U.S. rates contrast with lingering views in the market that the European Central Bank may cut rates in the near future to shore up the euro zone economy. But some market players worried about the latest uprisings in Iraq against U.S.-led troops. "I'm not entirely sure if one should buy the dollar with Iraq in such a mess," said Fumihiko Kawano, foreign exchange manager at Nomura Securities. Up to 12 U.S. Marines were killed on Tuesday in an attack by still unidentified assailants, while the battle between followers of a radical Islamic cleric and U.S.-led troops claimed more than 130 lives in three days. ($1=105.75 yen)///