The greenback was mixed against the majors in Tuesday trading, rallying against the yen while relinquishing yesterday’s gains versus the sterling. Fears on the stability of financial firms will continue to weigh on the dollar with earlier rumors of Countrywide, the US mortgage lender, seeking bankruptcy protection adding to market jitters.

Economic data released earlier in the session revealed further deterioration in the housing market. US pending home sales fell by 2.6% to 87.6, down from a revised 89.9 reading in October. The key highlight this week will be Thursday’s speech by Fed Chairman Bernanke, in which his comments will be closely scrutinized for clues as to whether another 25-basis point rate cut at the end of the month is forthcoming.

Fed comments today provided a somber view of the economy, with Boston Fed President Rosengren labeling the current housing investment decline to be the longest in 50-years. He highlighted that previous housing declines have led to economic downturns, and anticipates housing prices to fall more rapidly this year if the economy remains soft. Further, Rosengren said that the continued housing investment decline has heightened risk of “significant” economic downturn.

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