May 22, 2013 / 11:32 AM / in 4 years

FOREX-Dollar dips as bets trimmed before Bernanke testimony

3 Min Read

* Dollar index eases, investors awaits Bernanke for cues

* BOJ upgrades economic assessment, stands pat as expected

* Euro hits 3-1/2 year high vs yen, 2-year peak against Swissie

By Anirban Nag

LONDON, May 22 (Reuters) - The dollar shed some of its recent gains against a basket of currencies on Wednesday as investors trimmed their bets on the currency before testimony from the U.S. Federal Reserve chief.

Ben Bernanke, who testifies to Congress at 1400 GMT, may strike a somewhat optimistic tone on the economy, but with inflation subdued, analysts said he is likely to reiterate that the Fed's ultra-loose monetary policy will stay.

Two senior Fed officials on Tuesday also played down the chances of the bank signalling a readiness to begin winding down its bond buying when it meets next month.

There has been speculation that the recent improvement in the U.S. labour market will drive the Fed to begin reducing its bond buying later this year. That would hurt the dollar although any dips are likely to be shallow given U.S. growth is faster than that in most developed countries.

"Bernanke is likely to reiterate his dovish view that it is too early to withdraw monetary stimulus," said Marcus Hettinger, currency strategist at Credit Suisse.

The dollar index was down 0.1 percent at 83.787, slipping from a near three-year high of 84.371 struck last week. The index has risen 5 percent this year as speculators and long-term investors added to bets in favour of the dollar.

"Given the market is tactically long dollar, Bernanke's comments could see the dollar ease somewhat. But the Fed minutes are likely to be hawkish, so we expect the dollar to regain ground, especially against the yen," Hettinger said.

Minutes from the last Fed meeting are due at 1800 GMT.

The dollar's dip pushed the euro higher, with the single currency trading 0.2 percent higher at $1.2940.

The euro hit a two-year high against the Swiss franc of 1.2604 francs after Swiss National Bank chief Thomas Jordan did not rule out negative rates and said policymakers could adjust the currency cap if necessary.

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