* Dollar index off 3-year highs, dlr/yen down 0.6 pct
* Focus on Fed minutes and Bernanke speech due Wednesday
* Aussie pares loss after slipping on China trade data
By Anirban Nag
LONDON, July 10 (Reuters) - The dollar fell against the yen and a basket of currencies on Wednesday, tracking U.S. Treasury yields before the minutes of the Federal Reserve’s June meeting and a speech by Chairman Ben Bernanke.
But overall, sentiment towards the U.S. currency remained upbeat with investors likely to resume buying the dollar if the minutes and Bernanke reiterate that the Fed is preparing the ground to slow its asset-purchase programme in coming months.
The dollar fell 0.6 percent to 100.55 yen, pulling away from a six-week high of 101.54 yen set on Monday on trading platform EBS. The dollar index was 0.1 percent lower at 84.482, off a three-year high of 84.753 struck on Tuesday.
U.S. 10-year Treasury yields with which the dollar index has a robust correlation, were lower spurring some dollar selling.
“There is a risk that Bernanke in his speech could pour cold water on rising U.S. yields,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “But any dollar weakness will be bought into as the U.S. economy has the impetus to continue recovering.”
The dollar’s drop gave the euro and sterling a breather. Both tumbled the previous day, hurt by growing expectations that central banks in the euro zone and Britain will have to keep policy loose for a long time.
“Dollar buying will continue. With rising Treasury yields, there is no incentive to sell the dollar, particularly against the euro,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
For now, the euro shrugged off a downgrade to Italy’s credit rating by Standard and Poor‘s, rising 0.2 percent to $1.2805 . It had hit a three-month low of $1.2755 on Tuesday, after European Central Bank policymaker Joerg Asmussen said the central bank’s guidance on interest rates staying at a record low extended beyond 12 months.
The ECB later issued a statement saying Asmussen had not intended to give any guidance on the exact length of time for which it expects to keep rates at record lows.
“Although the ECB subsequently clarified and backtracked on this statement, euro zone policymakers clearly remain in a dovish mode and keen to keep rate expectations skewed to the downside,” analysts at BNP Paribas wrote.
The Australian dollar bounced after falling earlier on Wednesday as weak Chinese trade data reinforced expectations of a slowdown in China, a major export market for Australia.
The Aussie rose 0.3 percent to $0.9206, off an intraday low of $0.9125 hit after the Chinese trade data.