/www.fxserver.com/ TOKYO - The dollar remained under downward pressure in early Asia on Monday on concerns about growing tension between Iraq and the United States. But traders were nervous about selling the currency too actively against the yen due to wariness over possible intervention by the Japanese monetary authorities.
The dollar dropped to near a two-month low of 119.54 yen and a new three-and-a-half month low of $1.0149 against the euro in post-Asian trade on Friday.
Although the dollar regained some strength on light short-covering on Monday morning, the greenback was expected to be on the defensive, dealers said.
Dollar sentiment is deteriorating as the market has taken into account a series of negative factors, such as a possible war between Iraq and the United States, interest rate spreads and a widening current account gap in the United States, dealers said.
But the greenback's fall against the yen is expected to be somewhat slower than against other key currencies due to intervention concerns, dealers said.
"The market has been factoring in all sorts of dollar-selling factors, but I feel its drop against the yen is expected to be limited because there is no reason to buy the yen and also due to concerns over intervention," said Shogo Nagaya, foreign exchange section manager at Nomura Trust and Banking.
The market will be paying attention to comments on currencies by Japanese monetary officials.
At 2323 GMT, the dollar was at 119.90/95 yen compared with Friday's late U.S. level of 119.79/87 yen.
The market is also nervous about selling the dollar too strongly ahead of the Veterans Day holiday in the U.S. markets.
The euro edged lower but retained its firm undertone against the dollar.
The single currency was at $1.0126/31 against $1.0129/34.
The market is closely watching the situation in the Middle East after the U.N. Security Council voted unanimously for a tough U.S.-initiated resolution giving Iraq one last chance to disarm or face the consequences.
While U.S. President George W. Bush has said he hopes to avoid war, dealers said the resolution removed one more impediment to a military clash with Iraq over its weapons programme. Iraq's parliament will meet in emergency session on Monday to decide on a response to a U.N. resolution.
The dollar was quoted at 1.4440/45 Swiss francs .
On Friday, the greenback fell to 1.4428 francs, its lowest level in more than three months.
Sterling was well-supported at $1.5900/05 after hitting a two-year high of $1.5914 on Friday.