The pound fell slightly as the dollar made gains but held firm against the euro. News that Japan's debt rating may be updated has strengthened the value of the yen against the dollar.

This morning the dollar stood at 1.2843 to the euro, 1.88554 to the pound and at 0.008984 to the yen.

Debt rating firm Standard & Poor's said yesterday that it may up Japan's debt rating on the back of an improving economic outlook in the world's second largest economy.

S&P said it increased the outlook on its AA- rating for Japan's debt to positive from stable because of an end to seven years of deflation.

Standard & Poor's credit analyst Takahira Ogawa said: "The outlook revision is based on Japan's improved economic prospects, underpinned by restructuring in the private sector, the turnaround in the banking sector through the resolution of bad loan problems, and the elimination of deflationary pressure.

"This environment will support the stabilisation and eventual reduction of the general government debt burden."

Earlier expectations that the US Federal Reserve will raise rates this year has dwindled, while it is widely expected that the European Central Bank (ECB)will raise rates twice, strengthening the attractiveness of the euro.

"The euro is well supported by heightened expectations for further ECB rate increases,'' Yuji Saito, a currency dealer at Societe Generale in Tokyo, told Bloomberg

"I expect the Fed to raise rates just once this year, while the ECB will raise rates twice more.''