The Dollar fell against the Yen and the Euro on Tuesday on speculation the Federal Reserve could cut interest rates aggressively next week to calm market concerns over the credit turmoil and tightening liquidity.

This follows a surprise interest rate cut by the Bank of Canada, which heightened expectations the Bank of England could also ease monetary policy this week and backed the view that central banks were becoming more worried by the credit crisis.

The Bank of Canada cited expectations of more global financial market difficulties linked to the US sub-prime mortgage market leads its decision to cut its overnight lending rate 25bp to 4.25%.

Interest rate futures are pricing in a roughly 50% implied chance of a 0.50% point Fed cut, while a 25 basis points cut to 4.25% has been fully priced in. An aggressive cut would not only further reduce the appeal of Dollar-denominated assets but leave the market more worried than it already was about the US economy, analysts said.

EurUsd was up 0.65% at 1.4763. UsdJpy fell 0.53% to 109.85 and UsdChf dropped 0.9% to 1.1171, with investors reducing exposure to risk as liquidity tightens ahead of the year-end.

The surprise BoC decision sent the Canadian dollar tumbling. UsdCad jumped to a near 11-week high of 1.0153 and closed at 1.0121 up 1.16%.

The high-yielding Australian dollar was knocked lower ahead of a verdict on interest rates by that country's central bank today. AudUsd fell 0.97% to 0.8722. Analysts do not expect Australia's monetary authorities to follow their Canadian counterparts.

European Central Bank and Bank of England's rate decision are due on Thursday. Cable traded down 0.26% at 2.0583.