July 17, 2013 / 8:18 AM / 5 years ago

FOREX-Dollar shaky as markets look to Bernanke for Fed policy clues

* Dollar near 3-week low ahead of Bernanke testimony
    * Fed chief could have slightly dovish slant
    * Bernanke seen reiterating that tapering is not tightening

    By Anooja Debnath
    LONDON, July 17 (Reuters) - The dollar traded near a
three-week low against a basket of currencies on Wednesday, with
investors wary of betting on its strength ahead of Federal
Reserve Chairman Ben Bernanke's testimony to Congress later in
the day. 
    Bernanke last week caused a dramatic dollar sell-off with
comments that were considered unexpectedly dovish. That kept
most market participants on the sidelines on Wednesday ahead of
comments they hope will give more clarity on when and at what
pace U.S. monetary stimulus will be scaled back.
    The dollar index  which tracks the greenback's 
performance against a basket of major currencies, was up 0.1
percent at 82.681 but remained close to a three-week trough of
82.395 hit on Tuesday when it slid more than 0.6 percent.
    "I think Bernanke's speech will have something for everybody
but there will be a moderately dovish flavour to it as he would
rather the market remains buoyant on a more dovish take than
slump on a more hawkish one," said Neil Jones, head of hedge
fund FX sales at Mizuho Corporate Bank. 
    He added that while this might initially result in the
dollar falling, longer term he remained bullish on the currency
due to an improving economic backdrop in the United States. 
    Bernanke's testimony before the House Financial Services
Committee will start at 1400 GMT, with the text of his prepared
remarks to be released at 1230 GMT.
    The Fed chief is expected to deliver a message reassuring
markets of the U.S. central bank's continued support for the
recovering economy but reiterating that its ultra-easy policy
cannot last indefinitely. 
    Against the dollar, the euro was down 0.1 percent
at $1.3142, but still within sight of last week's peak of
$1.3208. Initial support was cited at Monday's low of $1.2992.
    The dollar was up 0.7 percent against the yen at 99.72 yen,
although it was still some way off this month's high of 101.53.
    The president of the Kansas City Federal Reserve Bank, Ester
George, again argued that the central bank should start cutting
its massive asset-buying programme in September. 
    Traders said the pre-emptive move to cut long dollar
positions meant there could actually be room for a bounce if
Bernanke does not sound too soothing.
    "We continue to favour running long dollar positions versus
G10 currencies, whose central banks are in easing mode,
particularly sterling," analysts at BNP Paribas wrote in a note.
    Before Bernanke's speech, the Bank of England will release
the minutes of its latest MPC meeting at 0830 GMT, which could
shed more light on whether new governor Mark Carney voted to
increase the bank's asset purchases.
    Sterling was down 0.5 percent at $1.5088. The euro
 was up 0.3 percent against the pound at 87.03 pence,
not far from the four-month high of 87.075 set on Tuesday.
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