* Dollar firm on Fed tapering hopes
* Bulls cautious ahead of Bernanke’s testimony
* Weaker-than-expected U.S. retail sales dent dollar’s momentum
By Hideyuki Sano
TOKYO, July 16 (Reuters) - The dollar held on to a moderate recovery path on Tuesday, with investors sticking to the view that the Federal Reserve is still likely to be the first among major central banks to move away from ultra-loose monetary policy.
Many traders were cautious about being too long in the dollar ahead of testimony on Wednesday by Fed Chairman Ben Bernanke, whose surprisingly dovish tone last week caused panic selling in the U.S. currency.
Many market players think Wednesday’s testimony is unlikely to change expectations that the Fed will start reducing its bond buying later this year and scrap it completely by mid-2014.
“The testimony is a venue to explain the Fed board’s thinking, rather than Bernanke’s own ideas. So I would expect his remarks to be a bit more hawkish than last week,” said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The dollar index stood at 83.03 in early Asian trade, little changed from late U.S. levels but maintaining its rebound from a low of 82.418 set on Thursday.
The index rose as high as 83.46 on Monday but its gains were trimmed after data showed U.S. retail sales rose less than expected in June, denting expectations of a reduction in stimulus by the Fed.
The dollar traded at 99.91 yen against the yen, holding on to gains in the past two sessions from last week’s low of 98.20 yen. An immediate resistance level is seen at 101.54 yen, its July 8 peak.
The yen could face more 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 euro was flat in early Asian trade and stood at $1.3054 , having been wobbling since it had peaked near $1.32 just after Bernanke’s comments last week.
The common currency was also undermined by a slide in German exports as well as Portugal’s political wrangling over austerity measures.
The Australian dollar rose a tad after emerging market currencies, such as Brazil’s real, posted big gains on Monday after data showed the economic slowdown in China was not as bad as some had feared.
The Aussie was up 0.2 percent at $0.9127, pulling away from Friday’s three-year low of $0.8998.