* Dollar inches lower versus basket of currencies
* Dollar bulls cautious ahead of Bernanke's testimony
* Aussie up as market pares rate cut bets after RBA minutes
By Anirban Nag
LONDON, July 16 The dollar fell against a basket
of currencies on Tuesday as investors cut long bets ahead of
testimony by Federal Reserve chief Ben Bernanke that could give
more clues to when U.S. monetary stimulus will be withdrawn.
But its losses against the euro were likely to be checked if
euro zone inflation data later in the session shows subdued
price pressures, as expected. That will add to the view that the
European Central Bank will keep interest rates low and may even
cut them further to aid an economic recovery.
Germany's ZEW survey is also due, with both economic
sentiment and current conditions expected to show an
"Recent data out of Germany has been disappointing, so if
the ZEW falls short of expectations we could see that undercut
the euro," said Jane Foley, senior currency strategist at
The euro was up 0.2 percent to about $1.3085 with
some large investors like Asian central banks likely to sell
into any bounce towards $1.3120/50, traders said.
Its gains saw the dollar index drop 0.15 percent to
82.911. The index had set a three-year high of 84.753 on July 9,
the day before Federal Reserve chairman Ben Bernanke's
surprisingly dovish comments on stimulus withdrawal last week
caused heavy selling of the U.S. currency.
Disappointing U.S. retail sales for June has also dented
expectations of an imminent reduction in stimulus by the Fed,
and weighed down on the dollar.
Bernanke is due to testify on Wednesday and analysts expect
him to reiterate his stance that U.S. monetary policy will
remain accommodative. He is likely to keep alive expectations
the Fed will start withdrawing its stimulus later this year, but
at the same time make clear that the central bank will not
tighten policy. That could trigger some sharp market swings.
"The testimony is a venue to explain the Fed board's
thinking, rather than Bernanke's own ideas," said Minori Uchida,
chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ. "So
I would expect his remarks to be a bit more hawkish than last
The dollar eased 0.3 percent against the yen to 99.57 yen
, staying above last week's low of 98.20 yen.
The yen could face some pressure towards the weekend on
expectations that Japan's upper house election on Sunday will
hand Prime Minister Shinzo Abe a big victory, giving him more
freedom to push forward with his agenda to revive the economy
through monetary easing.
Meanwhile, the Australian dollar bounced 1 percent
to $0.9182 as market players trimmed back bets on further
interest rate cuts following comments from the central bank.
The gains came after the Reserve Bank of Australia said in
the minutes of its July meeting that the current policy stance
was appropriate for the timing.