Dollar declined against a basket of currencies as investors reassessed whether the current expected economy growth improved enough to support the talk of higher U.S. interest rates by the end of this year. The ICE dollar index fell 0.96%.

The British pounded weakened to as low as 1.5985 against the greenback partly due to cross selling in yen (gbp/yen hit intra-day low of 156.61) in Asian session. However, as the British Prime Minister Gordon Brown won the support of most Labour members by promising to make unspecified changes to his leadership, admitting mistakes and taking responsibility for a week of political turmoil, this faded fears of a government collapse lifted the cable from there. Although the sterling retreated after the slightly better-than-expected U.K. DCLG house price date, the pound found renewed buying on dips and rebounded as house prices showed signs of stabilizing last month. Cable continued to trade with a firm undertone in New York session as investors had doubt on the present recovery if it is strong enough to support the U.S. Federal Reserve to raise its target lending rates by the end of this year. U.S. Treasury Secretary Timothy Geithner said in congressional testimony that ten of the country’s largest banks could repay a total of $68 billion of taxpayer money pumped into them by the TARP program to get through the credit crisis.

Euro briefly dipped to intra-day low of 1.3853 in Asian session partly due to the news that U.S. government desired European banks to undergo stress tests to ensure their survival in the event the economy worsens. However, European officials were skeptical on the idea and euro rebounded from there. The single currency dropped against the dollar after the release of weaker-than-expected German industrial production data (-1.9% versus forecast of 0.3%). Buying interest on euro emerged on dips and lifted the price to as high as 1.4102 in New York afternoon trade with the rise in crude oil futures ended up $1.92 or 2.82% at $70.01/barrel and the statement made by the U.S. Treasury Secretary Tim Geithner. Dollar also dropped against the Japanese to as low as 97.25 in late U.S. trade as investors pared bets for the Fed to raise interest rates by the end of 2009.

Data to be released on Wednesday include Japan CGPI, machine orders, Australia Westpac consumer confidence, German CPI and HICP, U.K trade balance, industrial and manufacturing production, Canada trade balance, new housing price index, U.S trade balance, Fed budget on Wednesday.