Traders focus on Fed Chairman Bernanke Speech

The dollar hit a 15-year low against a basket of currencies on Monday as investors braced for the Federal Reserve to slash interest rates next week to stimulate a U.S. economy showing signs of fatigue.

Euro-zone interest rates, meanwhile, are seen rising before the year is out, diminishing the dollar's yield advantage and sending it to its lowest level against the euro in a month.

Demand for the dollar fell sharply on Friday after data showed U.S. employers cut jobs in August for the first time in four years.

That sparked fear that a deepening housing slump and credit crisis was starting to cost American jobs and led investors to position for the Fed to cut its benchmark interest rate by 50 basis points at its Sept. 18 meeting.

Before the jobs data, markets were expecting a 25-basis-point cut. But one in five primary dealers polled by Reuters now expects a bigger cut, while Fed funds futures put the chance above 80 percent.

"This is a no-win situation for the dollar," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut. "A 25-basis-point cut and the Fed looks out of tune, leaving asset markets to extract an extra pound of flesh. A 25-basis-point cut and rate differentials do the dollar damage. The negative dollar views seem universal."

"With the last remaining holdouts abandoning their views that the Fed will not lower interest rates, the euro's interest rate advantage over the dollar continues to grow," said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.

Analysts expect the Fed to ease monetary policy to help restore confidence among banks that have become reluctant to lend to each other, leading to strains in money and credit markets.

The European Central Bank held euro-zone rates steady at 4 percent last week, as did central banks in Britain, Canada and Australia. But ECB President Jean-Claude Trichet said inflation remains a top concern, suggesting rate hikes could resume by year-end.

The yen, though, fell broadly after data showed Japan's economy shrank 0.3 percent in the second quarter, reinforcing views that Japanese interest rates will remain at 0.5 percent, the lowest in the developed world.

Today the market will be focused on the Trade Balance data which will be released in England at 8:30 GMT, U.S. at 12:15 GMT and Canada at 12:30 GMT. U.S. trade balance deficit expected to become wider, such negative data can push the buck much lover versus major currencies. In addition, ECB President Trichet Speaks at 13:00 GMT investors will be looking for clues about future monetary policy in Euro Zone. Later this day, most important will be Fed Chairman Bernanke Speech at 15:00 GMT.