* Dollar index down 0.2 percent, off recent 3-yr highs
* Dollar bulls cautious ahead of Bernanke's testimony
* Euro slips after German ZEW survey, recovers quickly
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 on when U.S. monetary stimulus will be scaled back.
Data suggested its losses against the euro would remain
muted, with German investor sentiment below expectations and
euro zone inflation highlighting subdued price pressures. That
added to the view that the European Central Bank will keep rates
low to aid an economic recovery.
"Volumes are low and unless the data is a huge surprise,
which was not the case, we are not going to see huge moves. Also
investors will stay cautious before Bernanke's testimony," said
Alvin Tan, currency strategist at Societe Generale.
"In the near term, a euro rise above $1.3200 is a sell."
The euro was up 0.3 percent to $1.3103, recovering
from $1.3057 struck after the German ZEW sentiment survey. Some
large investors including Asian central banks were lined up to
sell towards $1.3120/50, traders said.
The common currency's gains saw the dollar index shed
0.2 percent to 82.846. The index hit three-year high of 84.753
on July 9, the day before Federal Reserve chairman Ben
Bernanke's surprisingly dovish comments on withdrawing its bond
buying programme 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 that U.S. monetary policy will remain
accommodative. He is likely to keep alive expectations the Fed
will start withdrawing the stimulus later this year, while
making clear it will not tighten policy. That could trigger some
sharp market swings.
"There is a risk that the dollar could soften a bit more,"
said Jane Foley, senior currency strategist at Rabobank.
The dollar eased 0.3 percent against the yen to 99.60 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.
The Australian dollar bounced 1.5 percent to
$0.9225 as market players trimmed bets on further interest rate
cuts following comments from the central bank. The Reserve Bank
of Australia said in the minutes of its July meeting that the
current policy stance was appropriate.