Dollar firms before Bernanke, inflation dip hits sterling

Tue May 21, 2013 8:18am EDT
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By Marc Jones

LONDON (Reuters) - The dollar firmed, gold fell and shares slipped off five-year highs on Tuesday as investors postioned for an update on the future of the U.S. Federal Reserve's stimulus programme.

A slowdown in British inflation sent sterling to a 7-week low on the view it could give the Bank of England more leeway to support the UK economy, and the yen lost ground after a Japanese minister rowed back on remarks suggesting the currency had weakened enough.

The constant drip of global central bank stimulus during the financial crisis has pushed many financial markets to their highest levels in years, but in recent weeks Fed officials have started talking more openly about scaling back the bank's support.

That has made Wednesday's release of minutes from the central bank's last meeting and Fed chairman Ben Bernanke's testimony in Congress the main focus for markets waiting for the first signs of a clear shift change in attitude.

The usually dovish Chicago policymaker Charles Evans said on Monday that while the pickup in the U.S. jobs market continued he was "open-minded" about slowing the bank's bond-buying, and mentioned the idea of simply halting it.

The dollar .DXY was up 0.4 percent against a basket of major currencies at midday in Europe, comfortably below its recent three-year high. U.S. stock futures pointed to steady open on Wall Street.

Economists expect Bernanke to deliver a steady message on the bank's policy when he speaks to Congress. But any hint that it plans to scale back its support could unsettle markets.

Having hit a five-year high on Monday, top European shares .FTEU3 were 0.4 percent lower by 1130 GMT as traders took the uncertainty as a cue to lock in some of the recent sharp gains.   Continued...

A passerby is reflected on a stock quotation board in Tokyo May 15, 2013. REUTERS/Issei Kato