* Dollar index edges down 0.1 percent
* Focus on Powell’s testimony due later on Tuesday
* U.S. economic indicators this week also seen as key
* Traders brace for German, Italian political developments
By Masayuki Kitano
SINGAPORE, Feb 27 (Reuters) - The dollar eased on Tuesday, with the focus on a slew of economic data this week and Federal Reserve Chairman Jerome Powell’s testimony, which could determine whether the U.S. currency’s recovery from a three-year low has more room to run.
The dollar’s index against a basket of six major currencies fell 0.1 percent to 89.760. The greenback, however, is still 1.7 percent above a three-year trough near 88.25 set on Feb. 16.
The focus this week is Powell’s first congressional testimony, at a time when investors are nervous over the pace of U.S. monetary tightening after years of stimulus. Powell will testify on the central bank’s semi-annual report on monetary policy and the economy on Tuesday, before the U.S. House of Representatives’ Financial Services Committee.
Powell will probably sound optimistic on the economic outlook, but stress patience in assessing whether inflation will head higher, said Roy Teo, investment strategist for LGT Bank in Singapore.
“The dollar is unlikely to get a major lift after Powell’s speech,” Teo said.
Teo added that this is especially the case given the prevailing market expectations for the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, due on Thursday.
Economists polled by Reuters expect the core PCE to increase 1.5 percent year-on-year in January, which would be the same as December’s pace and still some way off from the Fed’s 2 percent target.
If that turns out to be the case, the hurdle for the Fed to upgrade its projections for the number of interest rate hikes this year at its policy meeting in March, will be relatively high, LGT Bank’s Teo said.
This week is crammed with U.S. economic data on consumer confidence, revised fourth-quarter growth, manufacturing and personal income and spending.
Against the yen, the dollar slipped 0.1 percent to 106.86 yen, but was still 1.2 percent above a 15-month low of 105.545 yen set on Feb. 16.
The euro edged up 0.1 percent to $1.2328, with investors seen cautious about taking big positions this week ahead of political events in Europe.
Italians vote in a national election on Sunday, while the leading political parties in Germany will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.
Euro zone inflation data due later this week further added to a nervous outlook for euro trading.
On Monday, European Central Bank President Mario Draghi spoke before the European Parliament and struck an optimistic tone about the euro zone economy. He said, however, that inflation has yet to show more convincing signs of a sustained upward adjustment. (Editing by Jacqueline Wong)