Euro recovers poise as QE outlook hits dollar The dollar weakened on Tuesday as investors continued to prepare for a possible further round of monetary easing in the US ahead of testimony from Ben Bernanke, chairman of the Federal Reserve. The US currency fell against the euro, the pound and the Australian dollar before Mr Bernanke's twice-yearly report on the economy to the US government. Expectations grew that Mr Bernanke could offer some hints of a third round of so-called quantitative easing that would stimulate the global economy after US retail sales figures released on Monday showed a surprise dip in June. "The asset market response to yesterday's disappointing US retail sales release suggests that the forex market now places greater weight on the possibility of Fed balance sheet expansion in the coming months," said analysts at Citigroup. This leads us to believe that if Bernanke does not significantly downgrade his economic assessment or if he signals that balance sheet expansion is unlikely any time soon, risk will sell off and the US dollar will likely strengthen. The euro rose back above $1.23 as investors cut their dollar positions, gaining more than 0.2 per cent to reach a session high of $1.2316. The Australian dollar rose 0.5 per cent against the US currency as expectations of further interest rate cuts in Australia fell. Minutes released by the Reserve Bank of Australia suggested a more hawkish stance at the start of the month following rate cuts earlier in the year, with members seeing "no need" for any further cuts in July. Gains in the Canadian dollar were more muted as investors awaited the outcome of a Bank of Canada meeting, with some speculating the central bank could sound a more dovish tone and reduce the likelihood of future rate cuts. "Any changes in tone should be taken as significant, given that the BoC has been one of the more hawkish G10 central banks until recently," said analysts at Morgan Stanley. The US dollar was flat against the Canadian dollar at C$1.0141. The yen bucked the trend to weaken against the dollar after fresh warnings from Japanese officials on the strength of the currency. The yen hit a one-month high against the US currency the previous day, prompting verbal intervention from Jun Azumi, finance minister, warning that the yen was being driven by "speculation" over the US economy. The sell-off in the yen soon faded, with the US dollar less than 0.1 per cent higher at Y78.92 by morning trading in London.