FOREX-Dollar tumbles as near-term U.S. stimulus reduction in doubt
* Dollar falls from three-year high vs basket of currencies
Fed minutes say more jobs needed before tapering
* Bernanke: highly accommodative monetary policy needed for foreseeable future
By Wanfeng Zhou
NEW YORK, July 10 (Reuters) - The dollar tumbled against the euro and yen on Wednesday after minutes from the Federal Reserve's latest policy meeting dented expectations of a near-term reduction in stimulus by the U.S. central bank.
The dollar's decline accelerated after Fed Chairman Ben Bernanke said highly accommodative monetary policy is needed for the foreseeable future.
Bernanke, speaking at a conference sponsored by the National Bureau of Economic Research, also said inflation is low and U.S. fiscal policy is quite restrictive and that the current unemployment rate of 7.6 percent, if anything, overstates the health of the U.S. labor market.
"Bernanke emphasized some of the risks to the U.S. economy, leading the U.S. dollar lower, with dollar/yen a good example," said Sebastien Galy, foreign exchange strategist at Societe Generale in New York.
"It's mostly a case of squeezing positions which had built up, rather than anything more fundamental about the Fed stance," he said. "Overall the reactions of the market are fairly intense to small Fed nuances, an indication of some fundamental instability or great uncertainty in the market."
The dollar had rallied to three-year peaks against a basket of major currencies on Tuesday on bets the Fed may start slowing its $85-billion-a-month bond purchases as early as September. But the Fed minutes suggested that might not be a sure bet.
Even as consensus built within the Fed in June about the likely need to begin pulling back on economic stimulus measures soon, many officials wanted more reassurance the employment recovery was on solid ground before a policy retreat.
"The minutes were not as hawkish as expected," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey.
The dollar fell to session lows against both the euro and yen after Bernanke's comments. The euro was last trading around $1.2986, while the dollar was at 99.65 yen.
The Fed's bond-buying program, known as quantitative easing, has pressured the dollar in recent years because it equates to printing money and erodes the value of the currency.
Hopes the Fed may slow its purchases grew after Bernanke said in June that the central bank would likely curtail bond purchases later this year and bring them to a halt by the middle of next year.
The dollar index, which tracks the greenback against a basket of six currencies, was last down 1.4 percent at 83.435, moving away from a three-year high at 84.753 touched on Tuesday.
Despite the weakness, some analysts believe the U.S. dollar looks poised to resume its rally on the contrasting monetary policy stances of the Fed and other major central banks.
They said discussions about the Fed have focused squarely on the timing of a reduction in stimulus, while central banks in the euro zone, UK and Japan remain biased for further easing.