VINACHEM

The dollar weakened for a third dayversus the euro amid speculation Federal Reserve Chairman Ben S. Bernanke will hint at additional monetary easing when hedelivers testimony today.

The U.S. currency dropped against most of its major peersafter an unexpected decline in U.S. retail sales yesterdayrekindled speculation the Fed will introduce additional steps tosupport the economy. The euro was 0.2 percent from a three-yearlow against the pound before a German report that economistssaid will show investor confidence deteriorated. Australia’sdollar rose after central-bank minutes signaled policy makerswere less likely to cut interest rates.

“There is market positioning for Bernanke to deliversomething today,” said Joseph Capurso, a currency strategist inSydney at Commonwealth Bank of Autralia (CBA), the nation’s biggestlender. “There is a high risk of more policy easing before theend of this year.”

The dollar dropped 0.2 percent to $1.2298 per euro at 8:25a.m. in London after falling to $1.2313, the weakest level sinceJuly 10. The greenback was little changed at 78.92 yen. Japan’scurrency depreciated 0.2 percent to 97.01 per euro.

Bernanke will deliver his semiannual report on the economyand monetary policy to the Senate Banking Committee today. Hewill testify to the House Financial Services Committee tomorrow.

Fed Bank of Kansas City President Esther George said in aspeech yesterday the U.S economy probably won’t grow muchfaster than 2 percent this year, due to caution among consumersand businesses.

Consumer Prices

A U.S. Labor Department report will show the consumer-priceindex was unchanged last month from May when it slid 0.3percent, according to a Bloomberg News survey. Retail sales fell0.5 percent in June, the Commerce Department said yesterday.

“If we don’t see continued improvement in the labormarket, we’ll be prepared to take additional steps ifappropriate,” Bernanke said after the Fed’s most recent policymeeting on June 20. “Additional asset purchases would be amongthe things that we would certainly consider.”

The Fed bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from 2008 to 2011, seeking to capborrowing costs and stimulate the economy. Last month, itexpanded the program known as Operation Twist that replacesshort-term Treasuries in its portfolio with longer-term debt.

ZEW Report

Gains in the euro were tempered before the ZEW Center forEuropean Economic Research releases its index of German investorand analyst expectations.

The gauge, which aims to predict economic developments sixmonths in advance, dropped to minus 20 this month, from minus16.9 in June.

“The euro will remain on a downtrend in the medium to longterm,” said Yuki Sakasai, a currency strategist at Barclays Plcin New York. “Compared with the U.S., the euro region’s economyhas more scope for monetary easing and is more prone to downsiderisks.”

The single currency was little changed at 78.48 pence afterweakening to 78.32 yesterday, the lowest since October 2008.

The euro has fallen 3.7 percent in the past three months,the worst performer among the 10 developed-nation currenciestracked by Bloomberg Correlation-Weighted Indexes. The yengained 6.3 percent, and the dollar advanced 3.6 percent.

Japan’s currency halted a three-day advance versus thedollar after Japanese Finance Minister Jun Azumi said gains inthe currency were “speculative” and officials will “takedecisive action if needed.”

Threat Remains

The yen appreciated to 78.69 per dollar yesterday, thestrongest level since June 18.

“The threat of officials intervening in Japan’s currencymarket always remains,” said Sacha Tihanyi, a senior currencystrategist at Scotiabank in Hong Kong, a unit of the Bank of Nova Scottia. (BNS) “They’ve done it in the past. I think thecredibility is there that they’ll do it again.”

The Australian dollar rose for a third day against thegreenback after the central bank released the minutes of itsJuly 3 policy meeting.

“Consumption was being supported by a favorable labormarket,” the central bank said. “With recent signs that thedomestic economy had a little more momentum than had earlierbeen indicated, members saw no need for any further adjustmentto the cash rate.”

Australia’s dollar advanced 0.5 percent to $1.03.