Two of Wall Street's biggest investment banks are predicting that the Group of Seven nations may soon feel compelled to intervene in world currency markets to prop up the US dollar.

Such a move would mark the first time G7 central banks have intervened since 1995.

Yesterday the dollar fell below 100 yen for the first time in 12 years, prompting speculation that European and Japanese central banks will be forced to act.

Stephen Jen, head of foreign exchange research in London at Morgan Stanley, said: "We're on intervention watch. While I don't think we have reached the threshold yet, the argument in favour of it is gradually becoming compelling."

Jim O'Neill, chief economist at Goldman Sachs, added: "The dollar's fall will worry other markets, which are so fragile right now. Intervention will definitely be on the minds of policymakers."

The last time the G7 acted together to prop up a currency was in 2000, when they sought to boost the nascent Euro.

Yesterday, the dollar fell to a new low against the Euro after the publication of appalling retail sales data, which fell far further in February than Wall Street had expected.

Currency traders were spooked after a $22 billion investment fund, owned by the private equity group Carlyle, collapsed, stoking fears that the credit crisis is worsening.

RealtyTrac, the foreclosure expert, also published numbers that showed the number of American households which had entered the foreclosure process had risen 60 per cent last month.

Successive interest rate cuts by the US Federal Reserve since September - and expectations of another half percentage point cut on March 18 to 2.5 per cent - have also led to a further weakening of the dollar.

Ian Shepherdson, chief US economist at High Frequency Economics, said: "The dollar will continue to fall until the Fed begin to make a noise about a change in policy."

A weak dollar causes problems for other economies who have strong trading ties with America.

Last month, the president of Toyota warned that the strong yen has made business conditions difficult for the car manufacturer. Separately, the German industrial group MTU Aero Engines said that the fall in the dollar might erode all its growth this year.

When central banks intervene to prop up a currency, they use their own reserves to buy the weak currency, stoking demand for it, and selling their own.

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