The dollar dropped against most major currencies on Monday with dealers anticipating that the Federal Reserve will have to cut interest rates aggressively after a policy meeting later this week to boost U.S. economic growth.

Those expectations were fueled on Monday after data showed U.S. new home sales in December were lower than expected, knocking the dollar lower against the yen.

The housing data is not good. There's no other way to look at it, said Tu Packard, senior economist with Moody's in West Chester, Pennsylvania.

The market is expecting more rate cuts, so there will be downward pressure on the dollar.

The dollar fell to 106.55 yen, down 0.2 percent from late Friday.

The euro rose 0.7 percent to $1.4775, rising for the fourth session out of the last five. Against the Swiss franc, the dollar was down 0.7 percent to 1.0890 francs.

Interest rate futures currently reflect a roughly 90 percent chance of a half percentage point rate cut by the Fed this week. Such a move would bring its benchmark lending rate to 3 percent, or 100 basis points below the euro zone's key interest rate, and further diminish the dollar's appeal to investors.

(Reporting by Kevin Plumberg and Steven C. Johnson, Editing by Chizu Nomiyama)