* Bernanke: Fed tapering to begin this year but plan not
* Dollar edges higher vs euro, yen; bullish outlook seen
* Sterling rises after unanimous vote not to expand BoE bond
By Wanfeng Zhou
NEW YORK, July 17 The dollar rose against the
euro and the yen on Wednesday after Federal Reserve Chairman Ben
Bernanke confirmed market expectations the U.S. central bank
will start reducing stimulus this year as long as the economy
grows as expected.
The dollar had earlier hit a three-week low against major
currencies immediately after the release of Bernanke's prepared
statement. Disappointing U.S. housing data also pressured the
dollar, traders said.
The Fed chairman, in testimony to Congress, said the U.S.
central bank still expects to start scaling back its massive
bond purchase program later this year, but he left open the
option of changing that plan if the economic outlook shifted.
Chris Tevere, currency strategist at Forex.com in New York,
said Bernanke's comments are just "reiterating that tapering is
going to be happening. It's just really more a matter of when is
the timing of tapering."
The euro fell 0.5 percent to $1.3099, after earlier
touching a session low at $1.3083, according to Reuters data.
Initial support was cited at Monday's low of $1.2993.
The dollar rose as high as 99.93 yen and was last
trading up 0.6 percent at 99.69 yen, still some way off this
month's high of 101.53.
While sticking closely to a timeline he first outlined last
month that the Fed would halt bond buying by mid-2014 when
unemployment is projected to be around 7 percent, Bernanke went
out of his way to stress that nothing was set in stone.
The market initially read Bernanke's comments as dovish,
which drove the dollar and bond yields lower and sent equities
higher. But the dollar rebounded as the reduction of Fed
stimulus remains on the agenda this year, analysts said.
"Today's testimony reiterates as long as the economy remains
on (its) current course for modest expansion, an autumn tapering
of purchases would eventually lead to the termination of
purchases by next year," said Ashraf Laidi, chief global
strategist at City Index Ltd in London.
The dollar index , which tracks the greenback's
performance against a basket of major currencies, rose 0.4
percent to 82.801, bouncing back after hitting a three-week low
Earlier on Wednesday, data showed U.S. housing starts and
permits for future home construction unexpectedly fell in June,
but the decline in activity was likely to be short-lived against
the backdrop of bullish sentiment among homebuilders.
Analysts said the data-dependent nature of the Fed means the
U.S. dollar could see periods of weakness.
"The fact that the Fed seems likely to taper stimulus this
year should generally see the dollar hold an edge against its
rivals. But the dollar would be susceptible to any downside
surprises to data," said Joe Manimbo, senior market analyst at
Western Union Business Solutions in Washington.
Sterling, meanwhile, rallied to a two-week high of
$1.5270, after minutes from the Bank of England meeting
surprised markets when it showed all nine MPC members had voted
against expanding its bond-buying program. It was last up 0.1
percent at $1.5177.
This wrong-footed investors who had built large bets against
sterling in recent weeks expecting further signals on policy
The Canadian dollar fell after the Bank of Canada
said it will hold its benchmark interest rate steady at 1
percent while the economy remains fragile and inflation stays
low. The U.S. currency last traded up 0.5 percent at C$1.0423.