LONDON: The dollar shed some of its lofty gains against a basket of currencies on Wednesday, as investors trimmed favourable bets before testimony from the US Federal Reserve chief.
Ben Bernanke will deliver his testimony to Congress at 1400 GMT and is expected to strike a somewhat optimistic view of the economy. But with inflation subdued, he is likely to reiterate the Fed's ultra-loose monetary policy will stay, analysts said.
That would temper speculation that a recent improvement in the US labour market will drive the Fed to begin unwinding its bond-buying programme later this year. This could see the dollar ease, but any dips are likely to be shallow, given US growth is faster than that in most developed countries.
Minutes from the last Federal Open Market Committee meeting, due at 1800 GMT, will highlight the debate on whether the Fed will scale back its asset purchases and are likely to support the dollar.
The dollar index was down 0.13 percent at 83.757, slipping from a near three-year high of 84.371 struck last week. The index has risen nearly 5 percent this year as speculators and long-term investors added to bets in favour of the dollar.
"Bernanke is likely to reiterate his dovish view that it is too early to withdraw monetary stimulus," said Marcus Hettinger, currency strategist at Credit Suisse.
"Given the market is tactically long dollar, Bernanke's comments could see the dollar ease somewhat. But the Fed minutes are likely to be hawkish, so we expect the dollar to regain ground, especially against the yen."
The dollar's dip pushed the euro higher, with the single currency trading 0.2 percent higher at $1.2935.
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