The euro dropped the most in almost a month against the dollar on concern Greece's struggles to reduce its budget deficit will damage confidence in the region. U.S. stock-index futures and commodities fell.

"The sharpening internal strains illustrate that the euro zone is far from being an optimal currency union," Michael Hart, a foreign-exchange strategist at Citigroup Inc. in London, wrote in a report. "This will ultimately make itself felt in the value of the euro."

The common currency weakened versus 15 of its 16 most- traded peers at 12:55 p.m. in London, sliding as much as 0.8 percent compared with the dollar, the biggest decline since Dec.17. Greek bonds slipped for a fourth day. Futures on the Standard & Poor's 500 Index fell 0.5 percent after JPMorgan Chase & Co., reporting fourth-quarter earnings, said its retail bank posted a loss. Oil retreated for a fifth day, its longest losing streak in five weeks, leading declines in commodities.

European Central Bank President Jean-Claude Trichet's warning yesterday that no member nation can expect "special treatment" fueled concern Greece's debt won't be eligible as collateral at the central bank, sending the cost of insuring Greek bonds against default to a record. As companies from Intel Corp. to JPMorgan Chase & Co. see improved profits, the S&P 500 is trading at 24.9 times earnings, the highest level since 2002.

Eoin Treacy's view One of the big consensus forecasts for 2010 has been for the US Dollar to rally significantly. Rising industrial production, stabilising housing markets and deficits beginning to narrow have all contributed to the shaping of this view. The continued pressure on some of the Eurozone's weaker economies is also a major factor in this forecast.

When analysts speak of Dollar strength they are most often comparing it to the Euro or possibly the Yen. However if one looks at a wider sample of currencies the story is more nuanced. The Dollar rallied impressively against currencies such as the Euro, Yen and Swiss Franc in December but considerably less so against commodity related and Asian currencies. Even against those which it was strongest against, it has lost momentum over the last few weeks and needs to sustain a break to new recovery highs to suggest anything more than a short covering rally.

When we look at trade weighted indices such as the Dollar Index, Asian Dollar Index and Latin American Dollar Index, it is clear where any Dollar strength is concentrated. The developed country currencies that comprise the Dollar Index share many of the debt and leverage problems of the USA while the Asian and commodity related currencies that dominate the other indices have largely avoided these pitfalls.

The Euro Trade Weighted Index hit an important peak near 144 in October and would now need to sustain a move above 140 to question scope for further downside. The Euro has broken downwards against the Swiss Franc, South African Rand, Canadian Dollar, Australian Dollar, New Zealand Dollar, Indian Rupee, Russian Ruble, Korean Won and Norwegian Krone among others in the last month. These cross rates indicate that the Euro's weakness is not simply confined to its recent poor performance against the US Dollar but is more broadly based.

The above charts suggest that rather than Dollar strength being a theme over the coming months, Euro weakness is likely to be a more pressing issue. The corollary remains that Asian ex-Japan and commodity producing Latin American currencies continue to post considerable relative strength against both the US Dollar and the Euro.