Can Bernanke Rein in Those Dollar Bulls?

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The U.S. dollar has been on a roll since talk of the Federal Reserve unwinding its aggressive monetary stimulus program gathered pace about a fortnight ago. Now, Fed Chairman Ben Bernanke could give the dollar bulls reason to pause, say strategists.

Bernanke testifies to Congress later on Wednesday amid speculation that he could shed some light on the timing of when the Fed will start phasing out the quantitative easing (QE) that has weighed on the greenback in recent years.

Speculation about monetary stimulus being phased out sooner rather than later lifted the dollar index, a measure of the dollar's value against other major currencies, to 84.37 on Friday – its highest level since July 2010.

"I wouldn't expect a big change from Bernanke's speech, so markets will be disappointed as over the last two weeks there has been a lot of discussion about the phasing out of QE and the dollar has rallied right across the board," said Gareth Berry, a currency strategist at UBS Investment Bank.

(Read More: Fed Policy Is Right on the Money: Chicago's Evans)

"For that reason, I think we could see the dollar retreat over the next 24 hours. We're still bullish on the U.S. dollar longer-term we just think the market has gotten ahead of itself for now," Berry said on CNBC Asia's "Squawk Box."

The dollar index was trading at 83.77 on Wednesday, not too far off those recent highs and is up 2.4 percent so far this month. The dollar has seen strong gains against major currencies this month, hitting four-and-a-half year highs against the yen and an 11-month peak versus the Aussie dollar.

(Read More: One-Two Fed Punch Fuels Rally)

While markets have started speculating that the Fed could start to gradually phase out its $85 billion monthly bond-buying program, analysts say Bernanke is likely to maintain a dovish tone when he testifies to Congress later in the day.

Federal Reserve Chairman Ben Bernanke
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Federal Reserve Chairman Ben Bernanke

"All eyes will be on Bernanke as analysts watch for tones of optimism in his outlook for the U.S. economy which could see the dollar continue its recent strength," Desmond Chua, a market analyst at CMC Markets, said in a note. "The more likely scenario however, is for Bernanke to stick to his usual dovish stance, talking about needing to see unemployment rate hitting 6.5 percent before he pulls the plug on QE. "

(Read More: Bernanke Expected to Deliver Dovish Message)

Will Oswald, global head of fixed income, currency and commodities at Standard Chartered Bank, said talk that the Fed would start signaling a shift in its monetary policy was a little "premature."

"One area where we might have got ahead of ourselves is the dollar. Everyone is already long the dollar, that is a near-term risk of unwinding and we look for a pull-back," he told CNBC.

"If you look at some of the data, a lot of the market positioning is on the expectation for more robust growth and it is still a very mixed picture," he added.

(Read More: Fed's Dudley: Tapering Depends on Economy and Jobs)

The jobs market has shown signs of improvement, with the key non-farm payrolls report showing the U.S. economy created a stronger-than-expected 165,000 jobs last month.

Still, other data suggest soft patches remain. The Institute for Supply Management index of manufacturing activity for instance, slipped to 50.7 in April from 51.3 a month earlier.

- By CNBC.Com's Dhara Ranasinghe; follow her on Twitter @DharaCNBC