By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar mostly declined Wednesday as investors awaited Federal Reserve chief Ben Bernanke's Capitol Hill testimony for clues about the U.S. central bank's outlook for monetary policy.
The dollar index (DXY 87.61, -0.79, -0.89%) , which tracks the U.S. unit against a basket of six major currencies, stood at 87.783, down from 88.307 late Tuesday.
The euro (CUR_EURUSD 1.2040, +0.0069, +0.5764%) rose to $1.2017, compared to $1.1942 in late North American trading on Tuesday.
Against the Swiss franc, the euro traded at 1.3792 francs, up from 1.3784 francs late Tuesday, recovering after having earlier hit an all-time low earlier at 1.3732 francs. Spikes in the exchange rate Tuesday prompted speculation that Switzerland's central bank had intervened to weaken its currency.
Traders also watched action in equity markets for indications about investors' willingness to move back to riskier assets, including stocks and emerging markets.
The euro, the Dow Jones Industrial Average (DJIA 9,988, +47.84, +0.48%) and 10-year Treasury note yields (UST10Y 3.22, +0.03, +0.78%) have yet to recovery from last Friday's rout, when worries about Hungary's financial health and a weak U.S. jobs report sent all three sharply lower.
Bernanke earlier this week sounded a modestly optimistic note on the outlook for the U.S. economy, saying that he didn't expect to see a double-dip recession. Read about Bernanke's recent comments.
Bernanke's unlikely to alter his assessment in testimony before the House Budget Committee, but he will be watched for any sign that the policy-setting Federal Open Market Committee is preparing to alter its oft-stated pledge to hold interest rates at low levels for an "extended period," said economists at KBC Bank in Brussels.
But Marco Valli, economist at UniCredit Bank in Milan, said Bernanke's unlikely to give such a signal amid ongoing turmoil in the euro zone and in the aftermath of last week's disappointing U.S. jobs data for May.
The euro remains in a fragile state amid ongoing worries about sovereign debt and any spillover effect on euro-zone growth.
The greenback suffered somewhat in early European trading after a purported leak by Chinese government officials indicated China's May exports surged 50% from a year ago, far outstripping forecasts of a 30% rise, said Boris Schlossberg, director of currency research at GFT.
The report spurred a rise in risk appetite, boosting equities and undercutting the dollar.
The leak helped ease fears of a global double-dip recession and suggested European demand may remain more robust than previously thought, Schlossberg said.
"We are highly skeptical of this thesis given the fact that serious austerity measures in the euro zone have yet to kick in," he said. Such belt-tightening measures could cause demand to drop sharply in the second half of this year.
Also Wednesday, the Fed will release at 2 p.m. Eastern time its Beige Book report on economic conditions across the central bank's 12 regional districts.
Both the euro and dollar turned higher against the Japanese yen, which often comes under pressure when investors exhibit greater comfort holding riskier assets.
"An easier dollar and yen tone fueled steady speculative flows back to the euro as equity markets moved higher," said analysts at Action Economics.
The euro (CUR_EURYEN 108.9000, -0.7500, -0.6840%) traded at ¥110.13, up from ¥109.01 on Tuesday. One U.S. dollar (CUR_USDYEN 91.4400, -0.0900, -0.0983%) bought ¥91.64, up from ¥91.32. See live currency market quotes.
The British pound (CUR_GBPUSD 1.4556, +0.0092, +0.6361%) changed hands at $1.4536, up from $1.4404.
