LONDON - The dollar remained weak against major currencies Thursday as its recent rally ran out of steam, with US bond yields turning lower and concerns over the size of the US current account deficit returning to the forefront of investors' minds.
The euro rose to 1.2909 dollars in late afternoon trade here from 1.2868 late on Wednesday in New York.
The dollar traded at 108.42 yen from 108.62 on Wednesday.
The main factor behind the dollar's recent gains -- which took it to two-month highs against the euro and more than five-month highs against the yen -- has been the interest rate differential between the United States and the eurozone and Japan, and higher US bond yields, but the rally could not continue indefinitely, analysts said.
"Unless there is any good news on the current account deficit, we expect any dollar rally to be short-lived," said Standard Chartered foreign exchange strategist Marios Maratheftis.
"We are not convinced the the dollar is ready to turn the corner yet," he added.
And with US trade data and portfolio inflows data due out next week, structural concerns over how the US will fund its ballooning deficit are likely to overshadow the prospect of higher interest rates.
Wednesday the yield on the 10-year US Treasury bond dipped to 4.404 percent from 4.436 percent and that on the 30-year bond eased to 4.732 percent against 4.742 percent. Bond yields and prices move in opposite directions.
Meanwhile, rate decisions in the eurozone and Britain came as no surprise to the market, with both resulting in unchanged rates.
An accompanying press conference by European Central Bank President Jean-Claude Trichet -- which was a little less dovish than many had expected -- gave the euro some support, however.
Trichet said although recent data had been mixed, they point to ongoing economic growth at a moderate pace over the short-term. He added that the ECB had not changed its assessment of risks to price stability over the medium term.
Given recent very weak eurozone data, particularly out of Germany, some had expected that Trichet may be forced to tone down his recent more hawkish tone, thus his in-line speech came as something of a relief.
Elsewhere, the pound remained weak against the euro after disappointing manufacturing data dashed hopes of a rate hike next month.
Official figures showed manufacturing, which still accounts for just below 20 percent of the British economic output, fell for the first time in five months during February.
Thursday's decision by the Bank of England to leave rates unchanged had no impact on the market, but many are hoping the release of the inflation report next month will provide the catalyst for a rate hike in May.
The euro was changing hands at 1.2909 dollars against 1.2868 late on Wednesday in New York, 139.96 yen (139.87), 0.6875 pounds (0.6843) and 1.5507 Swiss francs (1.5492).
The dollar stood at 108.42 yen (108.62) and 1.2013 Swiss francs (1.2030).
The pound was being traded at 1.8780 dollars (1.8805), 203.56 yen (203.11) and 2.2555 Swiss francs (2.2639).
On the London Bullion Market, the price of an ounce of gold stood at 428.00 dollars against 425.75 dollars late on Wednesday.
04/07/2005 18:02 GMT