* Dollar inches up slightly before Bernanke testimony
* Bernanke discusses exit strategy in WSJ article
* Dollar stems recent slide, risk demand seen returning
(Adds detail, comment, updates prices, changes byline)
By Naomi Tajitsu
LONDON, July 21 (Reuters) - The dollar inched up on Tuesday,
pausing from a slide to a six-week low against a currency basket
as traders booked profits on the U.S. currency's losses ahead of
Federal Reserve chairman Ben Bernanke's congressional testimony.
Currencies were little changed after an article by Bernanke
in the Wall Street Journal that said the U.S. central bank has a
strategy for removing accommodative measures once a recovery
takes hold []. But the central bank is not seen as
in a hurry to end quantitative easing.
Mixed U.S. and European earnings reports garnered limited
initial market reaction. U.S. bank State Street's earnings per
share were lower than expected in the second quarter, while the
performance of Dupont <DD.N> and others exceeded expectations.
Bernanke begins his twice-yearly testimony on the Fed's
economic outlook and monetary policy before the U.S. House
Financial Services Committee at 1400 GMT.
Some analysts said more reassurances that the U.S. economy
is improving -- albeit slowly -- may prompt a pick up in risk
demand and push the dollar lower.
"The focus is on whether Bernanke can maintain the balancing
act of conveying that the Fed is thinking about an exit strategy
but won't be initiating it it any time soon," said Jeremy
Stretch, strategist at Rabobank in London.
"If he can perform that act, the short-term risks are for a
higher euro/dollar."
In the WSJ, Bernanke said the Fed's exceptionally easy
policies would be warranted "for an extended period", but added
the huge amounts of money pumped into the economy will not
reduce its ability to push borrowing costs higher when needed.
At 1143 GMT, the euro was down slightly on the day at
$1.4220 <EUR=>, but remained near a six-week high of $1.4250 hit
on trading platform EBS the previous day. U.S. stock futures
inched up 0.2 percent, after trading largely flat in European
trade.
The dollar index was also steady at 78.918 <.DXY>, hovering
close to a six-week low of 78.799 touched on Monday.
RISK APPETITE
Traders sold currencies seen to be higher risk, including
sterling and the Australian and New Zealand dollars. Sterling
was the day's biggest loser, falling as much as nearly 1 percent
to $1.6385 <GBP=D4> and retreating from a three-week high as the
pound was stung by dismal UK public finances data.
The dollar <JPY=> was little changed at 94.20 yen, but the
Japanese currency rose broadly on the crosses, pushing sterling
down as much as 1 percent <GBPJPY=R>, while the Australian and
New Zealand currencies also fell against the yen.
The Canadian dollar inched up, with the U.S. dollar down 0.2
percent at C$1.1038 <CAD=>, before a Bank of Canada policy
decision at 1300 GMT, where it is expected to leave rates at a
historic low 0.25 percent. [].
Traders were cautious about risk before Bernanke speaks, but
analysts said that overall, market remained tilted in favour of
risk appetite following mixed U.S. earnings for the second
quarter and a last-minute rescue deal for U.S. lender CIT Group.
"CIT has been rescued, we've had better earnings, better
economic data and risk appetite is up - this is the story
driving the market at the moment," CMC Markets analyst James
Hughes said, adding that this cold push the dollar lower.
(Additional reporting by Jessica Mortimer, editing by Ron
Askew)
