April 20 (Bloomberg) -- The euro sank the most in a week against the dollar and tumbled against the yen after German investor confidence fell, and before Congressional testimony by Federal Reserve Chairman Alan Greenspan.

Traders boosted the U.S. currency on speculation Greenspan, who speaks today and tomorrow, will acknowledge gains in the world's largest economy without signaling an increase in interest rates before September. The euro dropped after the ZEW Center for European Economic Research's index of investor sentiment for this month fell to the lowest since July.

``The euro is likely to come under pressure as a result of the weak data,'' pushing it in coming days to about $1.1830, the lowest since November, said Mitul Kotecha, chief global currency strategist at Credit Agricole Indosuez in London. ``Investors are increasingly likely to factor in an ECB rate cut.''

Against the dollar, the euro fell to $1.1916 at 7:50 a.m. in New York from $1.2020 yesterday, according to EBS, an electronic foreign-exchange dealing system. It also fell to 128.54 yen from 130.30, the biggest drop since March 24. The yen rose to 107.86 per dollar from 108.45 after Japan's Nikkei 225 Stock Average gained 1.6 percent.

The ZEW sentiment index declined to 49.7 in April from 57.6 in March, bigger than the drop to 57.0 forecast by the median of 35 economists surveyed by Bloomberg News.

``This is another reminder that the larger European economies are in very poor shape,'' said Mary Davis, a currency strategist at Credit Suisse First Boston in London. The European Central Bank's key interest rate is 2 percent, twice the Fed's overnight lending rate.

ECB's Issing

``As long as France and Germany don't grow strongly together, things will improve only slowly in the euro region,'' ECB Chief Economist Otmar Issing said late yesterday in an interview with German broadcaster ZDF. The recovery will ``improve gradually,'' he said, and a rebound in the region's job market will come ``not before the second half of 2004.''

A reduction in the European rate would undercut the yield advantage offered on debt denominated in euros compared with dollar-denominated securities.

``It will be difficult for the ECB to damp expectations'' of an ECB rate cut ``in the wake of weaker data, with even Issing stating that he expects a still-cautious recovery,'' Kotecha said.

Reports this month have showed U.S. job growth and retail sales accelerating. Yesterday's U.S. Conference Board index of leading economic indicators had the biggest year-on-year gain in two decades.

Greenspan

The Fed chairman ``has to acknowledge the economy is doing well and the Fed will be looking to move rates up, while at the same time saying it's not going to happen overnight,'' said Jake Moore, a currency strategist in Tokyo at Barclays Capital Inc. ``The momentum on balance is positive for the dollar.''

Greenspan speaks to the Senate Banking Committee at 2:30 p.m. Washington time today and at the Joint Economic Committee tomorrow.

September Eurodollar futures yielded about 1.575 percent, falling from as high as 1.67 percent Thursday, as traders reduced odds of a rate boost. The futures settle at the three-month London interbank offered rate, or Libor, which has averaged about 23 basis points more than the Fed's target in the past 10 years.

Prices on the 10-year U.S. Treasury note have fallen and yields have risen for four weeks after increases in consumer prices, retail sales and employment boosted speculation the Fed will raise its benchmark rate as soon as September.

Japanese Shares

The yield on the U.S. Treasury 4 percent note due in February 2014 was 4.38 percent. Germany's 4 1/4 percent German bond maturing in January 2014 yielded 4.13 percent.

The U.S. currency rose against 12 of its 16 most-traded counterparts, including the euro, the British pound, and the Swiss franc.

``The market is really looking for some definitive signs from the Fed chairman as to the path of future interest rates,'' said Kamal Sharma, currency strategist in London at Dresdner Kleinwort Wasserstein. ``Obviously the market would like a hawkish statement coming out from Greenspan -- we doubt that that's actually going to happen.''

To contact the reporter on this story: Mark Tannenbaum in New York mtannen@bloomberg.net. John Beresford-Peirse in London jbpeirse@bloomberg.net.

Last Updated: April 20, 2004 07:58 EDT