The dollar remains under downward pressure amid fears over heightened tensions in the Middle East and a runup in crude oil prices.

Although the Israeli army withdrew from two Palestinian cities Tuesday, it remains unclear as to whether this signaled the beginning of a wider pullout.

The escalating Israeli military campaign in the West Bank and rising oil prices are scenarios that have bearish implications for the dollar.

Ambiguity over Washington’s will to intervene in the Israeli-Palestinian conflict has prompted investors to play it safe.

They are switching away from risky equity markets and into bond and short-term money markets.

The dollar could also sacrifice further ground against the euro as short-term interest rates are now higher in euro-zone economies than in the United States.

The yen’s present solidity could prove short-lived, however, amid lingering concerns over domestic economic prospects.

With the global economic outlook also cloudy and the price of crude oil rising in Japan, there appears to be little chance that foreign investors will increase their Japanese portfolio investments.

Essentially, Japan’s current account surplus works in the yen’s favor, but it can hardly be considered a safe haven in times of international unrest.

The dollar’s rise against the yen late last month can be traced to speculative buying.

There were indications that foreign investors had sold yen for dollars, counting on stepped-up purchases of foreign securities by Japanese institutional investors following the start of fiscal 2002.

This scenario has failed to materialize thus far.

A seasonal pickup in Japanese purchases of foreign securities does not usually become discernible until corporate investors return from the Golden Week holidays in April and May.

The dollar strengthened against the yen early last April, only to log a downturn shortly afterward.

The dollar’s topside has been capped lately by sales by Japanese exporters.

Still, the dollar’s long-term upward momentum remains unchanged.

The yen could find itself in a near-term range between 130 and 135 to the dollar.

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