By Pradip Mishra
of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The dollar is likely to continue its retreat against the major currencies Thursday, given the failure to reach a ceasefire agreement in the Middle East, and doubts on the likelihood of a near-term interest-rate rise in the U.S.
The latter view in the market follows from Wednesday's testimony to the joint economic committee of Congress by Federal Reserve Chairman Alan Greenspan. He indicated that although the U.S. economic outlook had "brightened," the strength of the recovery was still undetermined.
Analysts at ABN Amro see the euro/dollar rate capped at $0.8950, while dollar/yen isn't expected to hold anywhere below Y130.00.
At IDEAglobal, analysts see the dollar/yen rate supported around Y130.20, adding that a Japanese hedge fund rumored to be bidding for large amounts at Y130.50 could frustrate dollar bears temporarily. However, Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein said, "People still see further downside for the dollar and are citing no clear outcome in the Middle East they remain risk averse."
Greenspan's uncertainty over the U.S. economy isn't surprising, but that's what people are focusing on," added Mackel.
The chairman's comments fly in the face of recent corporate earnings announcements from a number of U.S. companies suggesting business is improving, and the market's perception of the rate of recovery may be revised in light of Greenspan's speech, added Mackel. There is also a feeling that, while interest-rate rises in Canada and in New Zealand earlier this week were rewarded by the appreciation of these countries' currencies, there is disappointment that a similar pattern wouldn't be repeated any time soon for the U.S. dollar, said Mackel.
Following Greenspan's speech, prices of the Fed funds futures contract seemed to rule out a U.S. rate hike in May, but indicated there could be one in June.