The dollar fell to a three-week low against the yen in holiday-thinned trade on Monday after a lethal attack in Saudi Arabia caused some investors to worry about higher oil prices and increased violence in the Middle East. The attack by suspected al Qaeda militants in Saudi Arabia on the weekend, in which 22 civilians were killed, was the second strike in a month thought aimed at destabilising the world's top oil exporter. "The Saudi situation is weighing on the dollar a little," said Shinichi Takasaka, a forex manager at Mitsubishi Trust and Banking Corporation. "There's no exit in sight from all this instability in the Middle East and that has many people doubtful about the dollar sustaining its gains."
Still, dealers said price movements were exaggerated in thin trade due to holidays in the United States and some European countries, including Britain. Dollar-buying sentiment has soured in the past two weeks as high oil prices and dovish comments from the U.S. Federal Reserve have dampened hopes of a significant raise in U.S. interest rates in June. At 0246 GMT, the U.S. currency was trading at 109.80/83 yen , after dipping as low as 109.72, the lowest mark since May 7 and compared with 110.22 yen in late New York trade on Friday. "It's a turnaround of the dollar-buying trend of the past two months. Recent buying had happened too fast," said Yoshi Yanagisawa, treasury manager and a vice president at State Street Bank in Tokyo. "There's room for the dollar to eventually fall to around 108 yen in the near term." It was nestled around $1.2205 per euro , compared with around 1.2225 in late U.S. trade on Friday. The single currency dropped nearly 1-Ѕ yen from its day high to 133.85 yen . The dollar had been receiving a boost in recent months from growing speculation that the U.S. Federal Reserve would lift interest rates in June.
Buying sentiment has since dampened due to Fed comments hinting that a rate rise may not come as soon or as aggressively as the markets had projected, and that near-record high oil prices could delay a rise. Japan's top financial diplomat, Zembei Mizoguchi, said on Monday that there was no change in the big picture on currencies, despite the yen's recent rise against the dollar.///