By Sarah Turner, MarketWatch
SYDNEY (MarketWatch) — The dollar’s recent rally against the Japanese currency proved short-lived on Friday, although the U.S. unit managed to gain ground against other major rivals.
The dollar (USDYEN 82.6300, -0.2600, -0.3137%) bought 82.71 yen on Friday, compared to ¥83.18 in late North American trading on Thursday.
At one stage the previous day, the dollar sported a gain of 1.1% against the yen, with the move coming after a downgrade of Japan’s long-term sovereign debt by credit-rating agency Standard & Poor’s. Read more on dollar's surge vs. yen
“We think that the overall impact on the Japanese yen will be limited. We note that, historically, downgrades of Japan by ratings agencies have had little impact,” said currency strategists at Barclays Capital on Friday.
“News about sovereign ratings typically have a larger impact on currencies attached to larger external public-debt positions — the euro-area peripherals, New Zealand and the U.K., for example,” they said.
Sterling (GBPUSD 1.5859, -0.0076, -0.4770%) traded at $1.5885 on Friday, down from $1.5933 late Thursday.
Noting the large gains by the dollar against the yen on Thursday, the strategists said that investors are currently more sensitive to news about government balance sheets than usual, and that positioning data indicates that investors were long the yen versus the dollar heading into the announcement.
“We do not think that either of these reasons will lead to a sustained move higher in the U.S. dollar/Japanese yen,” they said.
The dollar index (DXY 77.85, +0.12, +0.16%) , which tracks the greenback against a basket of six other currencies, traded at 77.848 on Friday, up from 77.707 in late North American action Thursday.
Moody’s Investors Service said late Thursday that it continues to rate the U.S. government’s bonds at Aaa with a stable outlook.
However, it added that recent trends and the outlook for U.S. government financial metrics “indicate that the level of risk, while still small, is rising and likely to continue to rise in the next several years.”
The agency said that, although it’s not currently contemplating action on its U.S. rating, the time-frame for possible future actions “appears to be shortening” and the probability of assigning a negative outlook in the coming two years is rising.
Fourth-quarter gross domestic product data for the U.S. is due out later in the trading day on Friday.
The euro (EURUSD 1.3704, -0.0029, -0.2112%) traded at $1.3701, compared with $1.3738 in late trading Thursday, with investors likely chewing over some news on the prospects for expansion of the European bailout fund.
Euro-zone governments will increase the lending capacity of their bailout fund and improve the fund’s flexibility but won’t raise the level of guarantees from 440 billion euros ($604 million), European economics commissioner Olli Rehn told The Wall Street Journal in an interview Thursday.
