The greenback fell broadly against major currencies as investors expected that the Federal Reserve will cut the target lending rate by 50 basis points on Jan. 30 to prevent a U.S. recession. Interest-rate futures showed an 82% chance the Fed will cut interest rates by 50 basis points to 3.0% from 3.5%, compared with a 70% chance on Jan. 25.

On the data front, sales of new homes in the U.S. decreased 4.7% in December to an annual rate of 604,000, the fewest since February 1995, from a 634,000 pace the prior month. The median price last month dropped 10% from December 2006, the biggest 12-month decline in 37 years.

The single currency rallied from 1.4660 to 1.4798 and from 155.56 to 158.35 against the dollar and the Japanese yen respectively. British pound rose from 1.9729 to 1.9893. U.S. currency tumbled from 1.0967 to 1.0873 versus Swiss franc. However, the greenback rebounded against the Japanese yen from 106.00 to 107.04 on active cross selling in jpy.

New Zealand dollar and Australian dollar rose against the U.S. currency from 0.7666 to 0.7777 and from 0.8767 to 0.8893 respectively on speculation a rally in U.S. stocks will prompt investors to buy high-yielding assets. Dow Jones industrial average ended up 178 points or 1.45% at 12384. S&P 500 rose 23.17 points or 1.74% at 1353.78.

President George W. Bush will have his Final State of the Union address on Tuesday. Bush and congressional leaders have been trying to thrash out a $150 billion stimulus package to help limit the economy's downturn this year from a reeling housing market.

Tuesday will see the release of Japan’s unemployment rate and retail sales, eurozone current account, U.K. CBI distribution trade, U.S. durable goods and consumer confidence.