Dollar on ice as markets await Yellen's testimony

TOKYO: The dollar remained frozen in recent ranges in Asia on Tuesday, as investors awaited Federal Reserve Chair Janet Yellen's congressional testimony later in the session for signals to when US interest rates might head higher.

The Bank of Japan, meanwhile, is expected to maintain its stimulus programme on Tuesday and its projection that inflation will approach its 2 percent target next year, though it might slightly cut its economic growth forecast.

With any modification in the projections seen to be small, market reaction is likely to be muted, although low trading volume might amplify moves.

Following the meeting, BoJ Governor Haruhiko Kuroda will address the media at 0630 GMT.

The dollar was flat on the day against the yen at 101.54 yen , remaining well off last week's seven-week low of 101.06 yen. The euro was also steady at 138.30 yen, solidly above last week's five-month low of 137.50 yen.

Markets will examining Yellen's remarks during her congressional appearances on Tuesday and Wednesday for clues to the timing of further interest rate hikes by the US central bank, after US data in the second quarter signalled that the economy is gaining momentum.

Private-sector jobs and nonfarm payrolls growth in June were better than economists had expected, and the unemployment rate fell to a nearly six-year low of 6.1 percent.

However, comments from other Fed officials have implied that policymakers are in no rush to tighten, and many investors expect more of the same from Yellen.

"Going into Fed Chair Yellen's Congressional testimony tomorrow, investors have bought the view that the Fed is on a steady-as-she-goes dovish course," Steven Englander, global head of G10 foreign exchange strategy at CitiFX, said in a note to clients.

"Most likely she will deliver as expected, but investors now take the dovishness for granted to a greater degree than they did in the past, so we will likely see a limited risk rally if all goes according to plan," Englander said.

The Fed Reserve will still need to deliver "unusually accommodative" monetary policy even once the US economy returns to "where we want it to be," Yellen was quoted as saying in The New Yorker magazine's July 21 issue.

Later on Tuesday, US retail sales data for June could give more evidence to economists predicting improved second-quarter economic growth. Economists expect retail sales to show a rise of 0.6 percent, up from 0.3 percent in May, according to a Reuters poll.

The euro was steady at $1.3621, but its topside was heavy after European Central Bank President Mario Draghi cautioned lawmakers that a strong currency could drag on a euro zone economic recovery.

Addressing a European Parliament committee in Strasbourg, Draghi reiterated that the ECB would stick to its accommodative monetary policy and might take unconventional steps against low inflation.

The Australian dollar was treading water at $0.9391 ahead of the release of the minutes of the Reserve Bank of Australia's latest meeting minutes.