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LONDON (Reuters) – The dollar edged down on Tuesday ahead of the Federal Reserve Chairman Jerome Powell, who will vote for clues on the pace of U.S. interest rates and risks emanating from trade conflicts.
Powell will testify on the economy and monetary policy before the US Senate Banking Committee at 1400 GMT on Tuesday.
He is expected to deliver an upbeat message on the outlook for growth and reaffirm the Fed's gradual monetary tightening policy but could tough on the central bank's independence and how it would deal with escalation in the global trade war.
"The escalating trade conflict is becoming more of a downside risk that could weigh on sentiment and capital spending," said Societe Generale analyst Guy Stear.
"It is questionable how much longer the central banker will be able to remain at the level of increasing tensions."
At 0745 GMT the dollar traded down 0.2 percent at 94.37 against a basket of six major currencies, paring small gains booked during early morning trade.
The US currency traded against the yen to 112.27 yen, after having approached earlier in the session a six-month high of 112.80 yen reached on July 13.
The dollar's gains have been harmed by the United States and China, the concern have made the greenback's solid performance so far.
The International Monetary Fund had warned on Monday that escalating and sustained trade conflicts following U.S. tariff action threat to derail economic recovery and depress medium-term growth prospects.
Analysts are uncertain how the Fed would react to the deterioration of China's deterioration in the price of growth.
"[If the trade war worsens] I would expect that the US dollar would initially appreciate the result of a safe haven," said Thu Lan Nguyen, an FX strategist at Commerzbank AG in Frankfurt.
Other major currency peers on Tuesday stuck to tight ranges.
The euro and British rose pound modestly against the greenback. The single currency added 0.2 percent to $ 1.1738 after weakening half a percent last week while pound was up 0.1 percent at $ 1.3255.
The Australian dollar edged up 0.1 percent to $ 0.7428. The currency is less than 5 percent since the beginning of the year because of a divergence in the interest rate outlook of the US Federal Reserve and Australia's central bank.
The New Zealand dollar, meanwhile, gained 0.8 percent to $ 0.6839, its highest level since hitting 0.6835 per dollar on July 11. Annual Core Inflation in New Zealand Accelerated for the third straight and increased since 2011. [19659018] Additional reporting by Daniel Leussink in Tokyo; Editing by Peter Graff
