The dollar weakened for a third day versus the euro amid speculation Federal Reserve Chairman Ben S. Bernanke will hint at additional monetary easing when he delivers testimony today.

The U.S. currency dropped against most of its major peers after an unexpected decline in U.S. retail sales yesterday rekindled speculation the Fed will introduce additional steps to support the economy. The euro was 0.2 percent from a three-year low against the pound before a German report that economists said will show investor confidence deteriorated. Australia’s dollar rose after central-bank minutes signaled policy makers were less likely to cut interest rates.

“There is market positioning for Bernanke to deliver something today,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Autralia (CBA), the nation’s biggest lender. “There is a high risk of more policy easing before the end of this year.”

The dollar dropped 0.2 percent to $1.2298 per euro at 8:25 a.m. in London after falling to $1.2313, the weakest level since July 10. The greenback was little changed at 78.92 yen. Japan’s currency depreciated 0.2 percent to 97.01 per euro.

Bernanke will deliver his semiannual report on the economy and monetary policy to the Senate Banking Committee today. He will testify to the House Financial Services Committee tomorrow.

Fed Bank of Kansas City President Esther George said in a speech yesterday the U.S economy probably won’t grow much faster than 2 percent this year, due to caution among consumers and businesses.

Consumer Prices

A U.S. Labor Department report will show the consumer-price index was unchanged last month from May when it slid 0.3 percent, according to a Bloomberg News survey. Retail sales fell 0.5 percent in June, the Commerce Department said yesterday.

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Bernanke said after the Fed’s most recent policy meeting on June 20. “Additional asset purchases would be among the things that we would certainly consider.”

The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 to 2011, seeking to cap borrowing costs and stimulate the economy. Last month, it expanded the program known as Operation Twist that replaces short-term Treasuries in its portfolio with longer-term debt.

ZEW Report

Gains in the euro were tempered before the ZEW Center for European Economic Research releases its index of German investor and analyst expectations.

The gauge, which aims to predict economic developments six months in advance, dropped to minus 20 this month, from minus 16.9 in June.

“The euro will remain on a downtrend in the medium to long term,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “Compared with the U.S., the euro region’s economy has more scope for monetary easing and is more prone to downside risks.”

The single currency was little changed at 78.48 pence after weakening to 78.32 yesterday, the lowest since October 2008.

The euro has fallen 3.7 percent in the past three months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 6.3 percent, and the dollar advanced 3.6 percent.

Japan’s currency halted a three-day advance versus the dollar after Japanese Finance Minister Jun Azumi said gains in the currency were “speculative” and officials will “take decisive action if needed.”

Threat Remains

The yen appreciated to 78.69 per dollar yesterday, the strongest level since June 18.

“The threat of officials intervening in Japan’s currency market always remains,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong, a unit of the Bank of Nova Scottia. (BNS) “They’ve done it in the past. I think the credibility is there that they’ll do it again.”

The Australian dollar rose for a third day against the greenback after the central bank released the minutes of its July 3 policy meeting.

“Consumption was being supported by a favorable labor market,” the central bank said. “With recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate.”

Australia’s dollar advanced 0.5 percent to $1.03.