July 20 (Bloomberg) -- The dollar fell against the euro on speculation that the U.S. currency's climb to a 14-month high this month already reflects expectations for further Federal Reserve interest-rate increases.

Fed Chairman Alan Greenspan's testimony on the economy to Congress today will probably match most analysts' expectations, failing to provide an incentive for further dollar gains, said strategists such as Marvin Barth at Citigroup Inc. The euro also rose on signs Europe's growth is improving. German investors became more confident in July, the ZEW institute said yesterday.

``Unless he says something new, the dollar may not get much lift today,'' said Marvin Barth, global currency economist at Citigroup Inc. in London. Traders who sold the euro against the dollar are now buying them back before Greenspan's testimony, he said. ``People have been really short of euros and if you look at where the surprises have been, it hasn't been the U.S.''

The dollar fell to $1.2066 per euro at 7:44 a.m. in New York, from $1.2035 late yesterday, according to electronic currency trading system EBS. Japan's currency fell to 113.05 per dollar, from 112.68, amid concern Japanese Prime Minister Junichiro Koizumi will fail to win approval for his biggest legislative proposal, spurring early elections.

Citigroup forecasts the euro will rise to $1.28 by year- end.

Greenspan is scheduled to speak before the House financial services committee at 10 a.m. in Washington. The Fed on June 30 raised its rate target to 3.25 percent, the ninth increase in a year, and kept a plan for further increases at a ``measured'' pace.

Europe Improving

``The market is taking a bit of the view of what Greenspan is expected to say is already pretty much priced in,'' said Michael Klawitter, a currency strategist at WestLB AG in Dusseldorf, Germany. ``That was clearly behind all the downward move that we've seen.''

Europe's currency has climbed more than 1.5 percent from the 14-month low of $1.1868 on July 5, as reports indicated the euro-region's economic slowdown may be ending. The euro has also advanced as European Central Bank policy makers said they weren't considering lowering interest rates.

``Europe is gradually improving and there are signs the economy is stabilizing, and that's helping the euro,'' said Derek Halpenny, senior currency strategist in London at the Bank of Tokyo-Mitsubishi Ltd. ``I'm not painting a rosy picture yet, but the situation has improved. Speculation about monetary easing has completely dissipated.''

German investor confidence reached a 10-month high in July, the ZEW Center for European Economic Research said yesterday. Factory orders in the country rose 2.7 percent in May, compared with the median forecast of a 1.1 percent gain in a Bloomberg survey, a July 6 report showed. Exports climbed 3.8 percent in May, the most in four months, a July 8 report showed.

`Crawling Out'

Japan's currency touched a 14-month low against the dollar and dropped versus the euro on speculation Koizumi will fail to get sufficient backing in parliament to pass his proposal to sell state-owned Japan Post.

``The political theme is something people are talking more and more about,'' said Adarsh Sinha, a currency strategist at Barclays Capital in London. ``Japan is crawling out of a soft patch, so in this environment any change in government will be taken as a negative for Japan and a negative for the yen.''

Japan's currency weakened against all of the most actively traded currencies. It tumbled to 136.41 per euro, from 135.62. Sinha said the yen will weaken to 115 per dollar in a month.

Koizumi Struggles

Koizumi is struggling to win support for his proposal to sell Japan Post, the world's largest savings bank, Shinzo Abe, secretary-general of the ruling Liberal Democratic Party, said today. The yen's drop accelerated as it fell past levels where traders placed pre-set orders to sell the currency, said Fumihiko Kawano, a currency sales director at Nomura Securities Co.

Koizumi, who has referred to the postal sale as the biggest reform in the nation in a century, is battling dissident members of the ruling party who argue that disposing of the postal service will cause cuts in jobs and services. Should 18 LPD members defy Koizumi in the upper house, the bill would be blocked.

`Major' Impact

The LDP's Abe said at a press briefing in Tokyo today that ``the impact on markets of any rejection'' of Koizumi's proposal to sell Japan Post ``would be major.''

The yen lost as much as 0.5 percent on July 5 when the legislation passed the lower house by only five votes, with 37 LDP legislators voting against.

``Koizumi has been a source of stability after a decade of economic turmoil in Japan,'' said Thomas O'Malley, head of global portfolio allocation in San Francisco at Barclays Global Investors, with more than $1 trillion under management. ``Investors like stability. The prospect of removing that stability would not be good for the yen.''

Barclays Global holds fewer yen than the percentage in the benchmarks it follows, O'Malley said.

To contact the reporter on this story: Jake Lee at jlee127@bloomberg.net; Joshua Krongold in New York at at jkrongold2@bloomberg.net.

Last Updated: July 20, 2005 07:58 EDT