The dollar fell for a third week against the euro, its longest losing streak since November, on speculation the US Federal Reserve will increase the pace of interest rate cuts to avoid a recession.

    According to Bloomberg News, the US currency declined one percent last Thursday, its biggest one-day drop in almost two months, when Fed Chairman Ben S. Bernanke said more interest-rate cuts "may well be necessary" to offset the "downside risks" to economic growth. Data to be released this week may show retail sales stalled in December, the housing slump deepened and consumer price inflation slowed.

    "The Fed will act to cut interest rates very aggressively to prop up the economy," said Fabian Eliasson, vice president of foreign exchange sales at Mizuho Corporate Bank in New York. "The dollar will suffer from the interest-rate differential perspective."

    The dollar fell 0.2 percent to 1.4776 U.S. dollars per euro, from US$1.4743 on January 4. The euro strengthened 0.4 percent to 160.79 yen, from 160.09.

    The dollar gained 0.2 percent to 108.84 yen, from 108.60.

    Fed funds futures contracts on the Chicago Board of Trade showed 34 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.5 percent by its January 30 meeting, compared with no chance last Thursday.

    The odds of a half-point cut were 66 percent, down from 88 percent on Thursday, and up from six percent a month ago.

    European Central Bank President Jean-Claude Trichet kept the main refinancing rate at four percent on the same day Bernanke spoke, and said he will "not tolerate" an inflation spiral.

    The dollar fell 9.5 percent against the 15-nation European currency last year when the Fed lowered interest rates one percentage point.

    "I'm in the dollar-bear camp," said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut.     

    "Economic standings in other countries are faring better than ours. The dollar needs to depreciate another four to five percent before it starts to offer value."

    US Treasury secretary Henry Paulson said the US economy slowed "rather materially" at the end of 2007, and any steps to jump-start growth will be "temporary."

    Retail sales in the US were probably unchanged last month, after increasing 1.2 percent in November, according to the median forecast of 61 economists in a Bloomberg News survey. The Commerce Department will release its report tomorrow. Consumer prices may have increased 0.2 percent in December, after rising 0.8 percent in the previous month, according to the median forecast in a separate Bloomberg survey. The data will be released on Wednesday.

    A separate report might show that builders in December broke ground on 1.145 million new homes at an annual rate, down from 1.187 million in the prior month, according to another Bloomberg survey of 59 economists. It would be the lowest since March 1993.

    "If we do see retail sales are flat and inflation subsides, an inter-meeting cut is possible," said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York.

    Goldman Sachs Group Inc has cut its forecast for the dollar on expectations the US may slip into a recession.