Dec. 25 (Bloomberg) -- The dollar declined against the euro for the 10th week in 11 on speculation the European Central Bank won't halt the currency's slide.

The U.S. currency is heading for its third straight annual drop against the euro and the yen amid swelling budget and trade deficits and as officials ignored calls to stem its slide. French Finance Minister Herve Gaymard on Dec. 23 became the latest European official to decry the euro's strength, saying ``without any coordination, we can imagine a catastrophic situation.''

``The dollar still has only one way to go against the euro, and that's down,'' said Toshi Honda, a currency strategist in London at Mizuho Corporate Bank Ltd. ``We'll see new waves of selling in January and February.''

The dollar fell to a record $1.3548 per euro on Dec. 24, and ended the week at $1.3528 as of 5 p.m. in Toronto, giving it a drop of 0.1 percent. The U.S. currency also fell against the yen, ending the week at 103.69 from 104.19 on Dec. 17. The dollar is down 7 percent against the euro and 3.4 percent versus the yen this year.

The euro's gains this year haven't been ``too troublesome'' yet, ECB council member Guy Quaden said in an interview with Belgian magazine Tendances published yesterday. ``Relevant authorities'' must confirm their statement at the last Group of Seven meeting that they are ``hostile to excessive volatility in the exchange rate,'' he said, according to the magazine.

`Pick up Where Left Off'

``People are going to come back in the beginning of next year and pick up where they left off, pushing the dollar down,'' said Robert Rennie, senior currency strategist at Westpac Banking Corp. in Sydney. ``There's little the U.S. wants to do about it.'' The dollar may fall to $1.40 per euro and below 100 yen in the first quarter of next year, he said.

U.S. Treasury Secretary John Snow said in a Dec. 3 interview he has ``deep respect for the way markets perform,'' suggesting he won't accede to any European and Japanese calls for action when G-7 finance ministers and central bank governors meet in February in London. Efforts to manage currencies were ``at best unrewarding and checkered,'' he said on Nov. 17 in London.

Gaymard told manufacturers during a visit to Strasbourg on Dec. 23 that the G-7 should discuss coordination to manage the dollar's decline.

``They are going to try and place pressure on the U.S. to act as part of a G-7 coordinated intervention to try to stop the dollar's slide,'' said Simon Derrick, head of currency strategy in London at Bank of New York, referring to European and Japanese officials. ``I don't think that's going to occur.'' He predicts the dollar will fall to $1.40 per euro next month.

European Central Bank President Jean-Claude Trichet joined European finance ministers in urging the U.S. to halt the decline of the dollar on Dec. 7, saying that the currency's slide risks derailing global growth.

`Play Their Part'

``All major countries and economic areas must play their part more actively in reducing global imbalances,'' Trichet said at a news conference in Brussels. No ECB officials are scheduled to speak in the coming week, according to the bank's Web site.

The U.S. has ``a strong dollar policy,'' U.S. Treasury spokesman Rob Nichols said on Dec. 23. ``Our long-held currency policy remains unchanged,'' he said in an e-mailed response to a question about the administration's stance.

The dollar's decline accelerated on Dec. 24 after it breached $1.3517 per euro, a level where traders placed pre-set orders to sell the currency, according to Chris Melendez, president of Tempest Trading Technologies, a currency hedge fund in Newport Beach, California.

Longest Since Reagan

The U.S. currency is headed for a third consecutive annual decline, measured by the Federal Reserve's Trade-Weighted Major Currency Dollar Index. The last time it fell for three years in a row was during Ronald Reagan's second term when the Group of Seven negotiated the Plaza Accord in 1985 to weaken the dollar and the Louvre Accord two years later to stem its decline.

Japanese Finance Minister Sadakazu Tanigaki said on Dec. 7 that he understood Europe's concern about the euro's gain and said ``we must take appropriate action,'' to address rapid moves in the yen.

Japan's currency is poised for the longest run of annual gains against the dollar in a decade. Rising Japanese stock prices may help lift demand for the currency, said Minoru Shioiri, manager of foreign exchange in Tokyo at Mitsubishi Securities Inc.

The Nikkei 225 Stock Average rose 1.4 percent on Dec. 24, extending this year's climb to 6.3 percent. Foreigners bought a net 293.8 billion yen ($2.8 billion) of stocks in the week ended Dec. 17, the Ministry of Finance said today, more than this year's weekly average of 202 billion yen. Foreigners have been net buyers of Japan's stocks in all but nine weeks this year.

`Nice Rally'

``A nice rally in Japanese shares makes people bullish on the yen,'' said Shioiri. ``The Nikkei should look even more appealing for overseas investors than its actual gains show because of the weak dollar.''

Federal Reserve Chairman Alan Greenspan said at the European Banking Congress in Frankfurt on Nov. 19 that foreigners may tire of financing the record U.S. current account deficit and diversify into other currencies.

A weaker dollar may help narrow the current account gap, which reached a record $164.7 billion in the third quarter, according to figures released on Dec. 16.

Foreign purchases of U.S. financial assets rose at the slowest pace in a year in October, the Treasury Department said on Dec. 15. Foreigners bought a net $48.1 billion, down from $67.5 billion in September.

``With a weaker dollar helping to ameliorate the size of the U.S. trade deficit, there's very little incentive for the U.S. administration to cooperate,'' said Monica Fan, global head of currency strategy in London at RBC Capital Markets.

RBC, which tied for most accurate forecaster for the euro in a third-quarter Bloomberg survey of 50 banks, predicts the dollar may fall to $1.40 in January, and to 100 yen within two months, Fan said.

To contact the reporter on this story: Richard Blackden at rblackden@bloomberg.net

Last Updated: December 25, 2004 04:10 EST