Dollar declines against euro

The dollar declined from a five-week high against the euro. The dollar also fell for the first day in four versus the British pound after Federal Reserve Chairman Ben Bernanke said fiscal policy alone will not lead to a lasting economic recovery, signalling the government may need to do more to stimulate growth.

The Australian and New Zealand dollars rose from four-week lows and the yen fell on speculation a rebound in Asian stocks will spur demand for high-yielding assets.

There are high expectations that US retail sales would fall for a sixth month in December, extending the longest run of declines since records began in 1992.

"We expect US retail sales to worsen significantly. There is a high chance that the dollar will face renewed selling pressure versus the yen," said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland.

Gains in the euro may be limited as economists forecast a report will show Europe's industrial output fell the most since 1993.

A Credit Suisse Group gauge of probability based on overnight index swaps indicated the ECB will lower its 2.5 per cent main rate by at least half a percentage point today, with seven per cent odds that the cut will be deeper.

"There are a lot of orders to sell the euro. Interest rate cuts are likely and that is weighing on the euro. There is not much good economic news coming out of Europe," said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp.

The common European currency may decline to $1.2940 this week according to the analysis of trading patterns, said Kengo Suzuki, currency strategist at Shinko Securities in Tokyo. Europe's currency lost 5.9 per cent against the yen, five per cent against the dollar and 4.9 per cent against the pound this year as reports showed services and manufacturing shrank in December by the most in at least a decade and inflation fell below the ECB's ceiling of two per cent for the first time since August 2007.

Follow Emirates 24|7 on Google News.