NEW YORK: The dollar fell on Monday against the yen and euro as profit-taking emerged after it reached a seven-year high against the yen that was briefly rattled by Moody's decision to downgrade Japan's credit rating.
The greenback rose as high as 119.15 yen on the EBS trading platform, its highest since July 2007, immediately after the rating agency lowered the world's third biggest economy's rating by a notch to A1 from AA3 due to its the fiscal problems.
Traders sought to reduce its dollar exposure in advance of European Central Bank's policy meeting on Thursday and November U.S. payrolls data on Friday, analysts said.
"It's a bit of profit-taking ahead of a big event week," said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.
Analysts said the dollar's longer-term surge against the yen and other currencies remained intact despite the weak start to December as the U.S. Federal Reserve will likely consider raising interest rates in 2015 while other major central banks might embark on more stimulus to help their economies.
"Once the knee-jerk reaction is out of the way, the downgrade underlines Japan's fiscal problems and should offer opportunities to put fresh long bets in favor of the dollar and sell the yen," said Jeremy Stretch, CIBC World Markets' head of currency strategy in London.
The dollar rose 5.6 percent against the yen in November, bringing its year-to-date gain to 12.3 percent. It was last down 0.3 percent at 118.22 yen.
The euro rose 0.2 percent to $1.2478 after weakening 0.6 percent versus the greenback in November. It has fallen 9.1 percent against the dollar so far in 2014.
The dollar reduced its earlier decline against the yen and euro on Monday after the Institute for Supply Management's index on U.S. manufacturing activity fell less than expected in November.
The euro's bounce against the dollar is likely limited as lower commodity and oil prices stoked bets the ECB would ease policy further to combat deflationary risks by early 2015.
None of the 17 traders polled by Reuters saw the ECB introducing more stimulus at its Thursday meeting.
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