Euro hits 1-month high as Moody’s affirms Spain.

The euro touched a one-month high versus the U.S. dollar on Wednesday after ratings firm Moody’s Investors Service held Spain’s rating a notch above junk grade.

“By passing on the opportunity to downgrade Spain’s rating to junk, Moody’s removed one major uncertainty from the financial markets and investors around the world have responded positively,” said Kathy Lien, managing director at BK Asset Management.

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The euro EURUSD +0.53% rose to $1.3122 from $1.3051 in North American trade late Tuesday. The shared currency traded as high as $1.3139 in U.S. action, its highest level since Sept. 17, according to FactSet.

The ICE dollar index DXY -0.27% , which measures the U.S. unit against a basket of six major currencies, fell to 79.015 from 79.371 on Tuesday.

Late Tuesday, Moody’s confirmed its rating on Spain, though still with a negative outlook, while a downgrade had been long awaited. That offered some relief to Spanish bonds and stocks, lifting global equities. Read Spain bonds, stocks rally as Moody’s stays pat.

That said, Spain isn’t out of the woods, said Kathleen Brooks, research director at Forex.com. Moody’s said Spain’s Baa3 credit rating could still be cut in coming months. The move leaves Moody’s Spain rating on par with Standard & Poor’s at the lowest investment-grade level.

S&P also has a negative outlook on Spain’s rating.

But Moody’s is willing to give Spain the benefit of the doubt, for now. The agency said it refrained from cutting Spain’s rating due in part to the European Central Bank’s willingness to purchase Spanish government debt through its bond-buying program, dubbed outright monetary transactions, or OMTs.

That program reduces the risk that Spain will lose market access. But Moody’s made clear it expects Spain to apply to the euro-zone rescue fund for aid, a step Madrid has been reluctant to take. The ECB’s bond-buying plan can only be implemented after a country applies for help to the ESM and agrees to abide by policy conditions.

The euro and European equities rose Tuesday and U.S. stocks were buoyed by reports Spain was preparing a request for a precautionary credit line from the ESM. Read: Euro tops $130 on Spain bailout talk.

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Spanish Prime Minister Mariano Rajoy

European equities were up in late New York morning action, while the S&P 500 Index SPX +0.25% lately gained 0.4%. U.S. stocks lifted by housing, hit by earnings.

The dollar tends to fall as risk appetite rises, while currencies such as the Australian and New Zealand dollars, and the euro, often rise.

The WSJ Dollar Index XX:BUXX -0.42% , a gauge of the currency’s moves against a slightly wider currency basket, fell to 69.24 from Tuesday’s close of 69.54.

The Australian dollar AUDUSD +0.96% traded at $1.0374, up from $1.0269 late Tuesday.

The New Zealand unit NZDUSD +0.89% turned up 0.5% to 82.19 U.S. cents.

The British pound GBPUSD +0.27% meanwhile, jumped after data showed the U.K. unemployment rate unexpectedly fell to a 15-month low at 7.9% in the three months ending in August. See: U.K. jobless rate falls to 15-month low

Sterling traded at $1.6136, up from $1.6119. The euro EURGBP +0.27% slipped 0.2% against the pound to 81.25 pence.

Against the Japanese currency USDJPY +0.07% , the dollar traded at ¥78.79, down from ¥78.91 on Tuesday.