FOREX-U.S. dollar slips ahead of Bernanke testimony
* Market awaits clues on more QE from Fed chair * ZEW investor sentiment index drops for 3rd month * Dollar rallies versus yen By Gertrude Chavez-Dreyfuss NEW YORK, July 17 (Reuters) - The dollar was slightly weaker versus the euro and most currencies on Tuesday, ahead of testimony from Federal Reserve Chairman Ben Bernanke, with investors betting he would hint at further monetary stimulus after recent disappointing U.S. data. More Fed quantitative easing would be negative for the greenback as this would mean flooding the financial system with dollars and diminishing the currency's value. "Key for the dollar, and financial markets as a whole, will be the extent to which Bernanke hints that more policy easing is needed to boost the U.S. economy, especially in light of recent signs of stalling growth," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "A dovish tone to Mr. Bernanke's comments would weigh on the dollar." With investors positioning for more easing by the Fed, analysts saw a risk that the dollar may bounce or that assets such as stocks and growth-linked currencies could drop if the Fed chief stops short of signaling more stimulus. Bernanke will deliver his semi-annual monetary policy report to Congress from 1400 GMT. The Fed last month expanded efforts to keep long-term interest rates low by announcing it would buy an additional $267 billion in long-term bonds while selling short-term securities. However, it held off from launching a third round of outright bond purchases that would expand its balance sheet, a form of stimulus known as quantitative easing (QE). Bets on more QE grew after disappointing U.S. retail sales data on Monday. The euro was up 0.1 percent against the dollar at $1.2282, after hitting a one-week high of $1.2315 shortly after the release of the German ZEW survey, which was not as bad as some had feared. Nonetheless the index, which tracks German analyst and investor sentiment, dropped for a third month in July, providing further evidence that the euro zone crisis was taking a toll on Europe's largest economy. The dollar was also down 0.1 percent down against the Swiss franc at 0.9978 franc, falling as well as versus the Australian dollar, which rose 0.4 percent to US$1.0282. Strategists at Citigroup said Bernanke will likely leave the door open to give investors some hope for additional measures without making concrete commitments or being clear on timing. While this would keep the dollar somewhat weaker against most major currencies except the euro, any bounce in the common currency was likely to prove fleeting, given the problems in the euro zone, they added. The greenback, however, firmed 0.3 percent against the yen to 79.11, a day after dropping to one-month lows. Expectations that the Bank of Japan could intervene and check gains by the yen was keeping investors wary of that pair, traders said. Japanese Finance Minister Jun Azumi hit out at speculators betting on gains in the yen due to weak U.S. economic data, and hinted the government was prepared to intervene to stem excessive moves.
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