SYDNEY (Reuters) - Investors made short shrift of the dollar early in Asia on Thursday after dovish comments from Fed Chairman-elect Janet Yellen suggested the U.S. central bank might not be near scaling back its stimulus, sending Treasury yields lower.
Yellen, in remarks prepared for her nomination hearing before the Senate Banking Committee later on Thursday, said the U.S. jobless rate was still too high and both the labor market and economy were performing "far short" of potential.
Investors responded by driving the benchmark 10-year Treasury yield down as far as 2.688 percent, from a high of 2.772 percent, which in turn undermined the greenback.
The dollar index .DXY skidded to one-week lows at 80.740, before steadying somewhat at 80.804. That saw the euro jump towards $1.3500, pulling up from Wednesday's low of $1.3390.
Against the yen, the greenback slid to 99.20 yen, down from a two-month peak of 99.80 set just two days ago.
Traders said Yellen's comments dented some expectations that the Fed will begin to taper its bond-buying stimulus program by December or January.
Ahead of her appearance before the Senate Banking Committee, Fed Chairman Ben Bernanke will be giving a speech around 0000 GMT on "Teaching and Learning About the Federal Reserve".
"All the focus now is on these key Fed members to show their policy hand," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.
The euro, meanwhile, drifted up to 133.80 yen from Wednesday's low of 133.24.
The common currency's performance was remarkable especially since European Central Bank Executive Board member Peter Praet raised the prospect of the central bank starting to buy assets to bring inflation closer to its target.
In contrast to Yellen's remarks, the Bank of England Governor Mark Carney gave an upbeat assessment of the country's economy, saying the recovery has finally taken hold.
"For the first time in a long time you don't have to be an optimist to see the glass is half full," Carney said, although he was quick to stress the BOE was not about to raise interest rates anytime soon.
Still, investors used those comments as an excuse to bid up sterling, which bounced to a near one-week high of $1.6048. The euro slid to 83.99 pence, retreating from a 1-1/2 week peak of 84.64 pence.
"The BOE's quarterly inflation report struck a more hawkish tone than anticipated, with the BoE upgrading its labor market forecast considerably," said Christopher Vecchio, currency analyst at DailyFX.
In Asia, Japan's third-quarter gross domestic product data will be in focus.
Growth in the world's third-biggest economy is expected to have slowed after leading the Group of Seven industrial powers in the first half of the year, as capital spending, personal consumption and exports moderated, a Reuters survey showed.
Editing by Richard Pullin