July 12, 2017 / 7:44 AM / 4 months ago

FOREX-Dollar stalls vs yen before Yellen testimony

* Sterling falters after BOE’s Broadbent comments

* More weakness in store if earnings disappoint

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, July 12 (Reuters) - The dollar slipped against the yen on Wednesday, surrendering some of its recent solid gains as investors moved to the sidelines ahead of testimony from Federal Reserve Chair Janet Yellen.

The greenback edged 0.4 percent lower against the yen to 113.49 in early trades after rising more than 5 percent over the last month as traders played the diverging trends between a hawkish Fed and a dovish Bank of Japan.

“The Yellen testimony remains the key event risk in today’s session but we remain optimistic about the dollar’s outlook and putting on a long position against sterling is the best way to execute that view,” said Adam Cole, head of FX strategy at RBC Capital Markets in London.

Yellen will give her semi-annual monetary policy testimony before Congress later on Wednesday and on Thursday, and investors will be parsing it for clues on when the Fed will start reducing its massive balance sheet.

The Fed raised rates last month to a range of 1 percent to 1.25 percent and market expectations are roughly of a 50 percent probability that interest rates will rise again before the end of the year, according to the CME’s Fed watch data.

While there is a 50 percent probability for the Bank of England to raise interest rates too before the end of the year, markets are expecting the central bank to strike a dovish stance after recent soft data and comments from policymakers.

In an interview for a Scottish newspaper, the Press and Journal, published on Wednesday, Bank of England Deputy Governor Ben Broadbent said that while there was reason to see the bank moving towards higher rates, there were “a lot of imponderables”.

His comments pushed sterling to a two-week low against the dollar and to its lowest in eight months against the euro in early trading on Wednesday.

Chris Turner, global head of strategy at ING, expects sterling to test support at 1.2750 if earnings disappoint.

The Canadian dollar was slightly higher against its U.S. counterpart as investors awaited a Bank of Canada interest rate decision later on Wednesday.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Saikat Chatterjee; Editing by Gareth Jones; Editing by Gareth Jones)

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