The greenback fell against major currencies on Monday ahead of a widely expected Federal Reserve interest-rate cut. Interest rates futures showed a 100 % chance the central bank will lower its benchmark overnight rate by at least a quarter-percentage point tomorrow to 4.25% to keep a housing slump from sparking a recession. The chance of a 50 basis points cut to 4.00% was 20% from around 50% a week ago after the release of a series of stronger-than-expected U.S. economic data.

The British pound rose strongly after triggering some stops above 2.0350/55 (previous major sup at 2.0352) and rallied to 2.0489 on cross buying in sterling (gbp/jpy rose strongly from 226.31 to 228.83) with the help of higher-than-expected U.K. DCLG house prices together with dollar’s weakness against other European currencies.

ECB council members Juergen Stark and Erkki Liikanen said policy makers disagree with ECB's latest projections last week that inflation will slow to below the bank's 2% limit in 2008. The hawkish comments added speculation that ECB may raise interest rate in the coming meeting. The single currency rallied against the dollar from 1.4640 to 1.4737 before retreating briefly after the release of stronger-than-expected U.S. pending home sales which rose by 0.6% instead of the 1.0% drop in October.

The greenback rose to a one-month high of 111.90 versus the Japanese yen on active cross selling in jpy. Euro and aussie rallied against the Japanese currency from 163.21 to 164.58 and from 97.34 to 98.93 respectively. U.S. currency weakened versus Swiss franc from 1.1301 to 1.1236 before rebounding due to renewed cross selling in chf.

Bank of Canada Governor David Dodge repeated that the central bank does not make decisions based on just one economic indicator. Dodge cited the upside risks to inflation from the strong jobs numbers, saying they were another indication of Canada's economy pressing towards capacity, but said there were other factors to consider. The U.S. currency retreated against the Canadian dollar after Monday’s rebound from 1.0007 to 1.0120 and closed at 1.0074.

Tuesday will see the release of Japan’s consumer confidence, German WPI, U.K trade balance, eurozone and German ZEW index, U.S. wholesales inventories and the closely watched Fed interest rates decision at 19:15GMT.