The dollar weakened versus the yen amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to damp investor expectations of a reduction in stimulus when he speaks before Congress tomorrow. India’s rupee rose to a two-week high after its central bank raised two interest rates. Australia’s dollar climbed against all 16 of its major peers as investors pared bets the Reserve Bank will cut borrowing costs after the minutes of its last meeting released today. The euro snapped a two-day drop against the dollar even after a report showed German investor confidence unexpectedly fell this month. Bernanke said on July 10 the U.S. economy still needs stimulus. “Bernanke was dovish last week and so the chances are that he repeats some of that rhetoric about accommodation,� said Jane Foley, a senior currency strategist at Rabobank International in London. “The market is positioning itself for a dovish Bernanke tomorrow so the dollar therefore is on the defensive. The euro is seeing some benefit from that.� The dollar declined 0.4 percent to 99.51 yen at 8:39 a.m. New York time. The U.S. currency slid 0.3 percent to $1.3104 per euro. The 17-member euro was little changed at 130.44 yen. The greenback pared losses versus the yen and euro after the cost of living in the U.S. rose in June by the most in four months as gasoline prices increased, a sign inflation is advancing toward the Fed’s 2 percent-per-year goal. The consumer-price index increased 0.5 percent after a 0.1 percent gain the prior month, Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey called for a 0.3 percent rise. Low Volatility JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, was near a one-month low. The gauge was little changed at 10.55 percent after dropping to 10.47 percent on July 9, the lowest since June 18. Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress this week, starting tomorrow at the House Financial Services Committee. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs. While Bernanke last week damped speculation the central would slow its buying, minutes released the same day of the Fed’s last policy meeting showed “about half� of participants indicated “it likely would be appropriate� to end the purchases late this year. The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, dropped 0.3 percent to 1,033.80. German Confidence The euro pared an advance against the U.S currency after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 36.3 from 38.5 in June. That’s the first decline in three months. Economists forecast an increase to 40, according to the median of 37 estimates in a Bloomberg News survey. The rupee gained after the Reserve Bank of India increased the marginal standing facility rate and the bank rate to 10.25 percent from 8.25 percent late yesterday in Mumbai, according to a statement on its website. The monetary authority also said it will conduct open-market sales of government debt totaling 120 billion rupees ($2 billion) on July 18, a step that would drain cash from an economy expanding at the slowest pace in a decade. The rupee appreciated 1.1 percent to 59.2513 per dollar, according to prices from local banks compiled by Bloomberg. The currency, which fell to a record 61.2125 on July 8, touched 59.1250, the strongest level since July 1. Aussie Climbs Australia’s inflation outlook, which is slightly higher because of a weaker currency, could still provide some scope for further easing, the minutes of RBA’s July 2 meeting showed. Swaps data compiled by Bloomberg show traders see a 55 percent chance of the central bank cutting its key interest rate next month, down from 65 percent indicated yesterday. The Aussie dollar jumped 1.4 percent to 92.25 U.S. cents after dropping to 89.99 on July 12, the weakest level since September 2010. The Aussie has fallen 9 percent in the past six months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 6 percent in the same period, the biggest gainer, while the yen declined 7.3 percent. “People were probably positioned a little short going into the minutes expecting a bit more dovishness,� said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia. The minutes showed “even though the fall in the currency is likely to see inflation pick up slightly, it’s still within the range where they could provide stimulus.� A short position is a bet an asset will decline. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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