Dollar pressured by Trump Jr. emails, focus on Yellen testimony

By Lisa Twaronite

TOKYO (Reuters) - The dollar wobbled in early Asian trading on Wednesday as investors, already wary ahead Federal Reserve Chair Janet Yellen's testimony, digested emails released by President Donald Trump's eldest son suggesting he welcomed Russia's help in last year's election campaign.

Yellen will give her semi-annual monetary policy testimony before Congress later on Wednesday and on Thursday, and investors will be parsing it for or clues on when the Fed will start reducing its massive balance sheet.

The dollar index, which measures the U.S. currency against a basket of six major rivals, was slightly lower on the day at 95.641 .

Against its Japanese counterpart, the dollar slipped 0.2 percent to 113.675 yen , moving away from a four-month high of 114.495 yen marked on Tuesday.

Emails released by Donald Trump Jr. on Tuesday showed he agreed last year to meet a woman he was told was a Russian government lawyer who might have damaging information about Democratic White House rival Hillary Clinton as part of Moscow's official support for his father.

Investors' mood turned more hopeful later in the session after U.S. Senate Republican leader Mitch McConnell announced a two-week delay in the Senate's August recess to provide more time to work on legislation and approve nominees, which could lead to progress on tax reform and fiscal stimulus.

Even after the news of the longer session, "the U.S. dollar did not return to beginning-of-the-day levels," said Bill Northey, chief investment officer at U.S. Bancorp Wealth Management in Helena, Montana.

While the dollar was buffeted by the political headlines on Tuesday, it remains underpinned against the yen by divergent monetary policy expectations for the Federal Reserve and the Bank of Japan, he said.

"Central banks around the globe seem to be either removing their accommodation or talking about removing their accommodation, except for the BOJ," said Northey.

Ahead of Yellen's remarks, Fed Governor Lael Brainard said the central bank should soon begin reducing its balance sheet, as long as economic data on U.S. jobs and growth holds up.

But she wasn't as hawkish as some investors hoped, saying that once balance sheet reduction is under way, she will assess inflation before deciding on further interest rate increases.

Philadelphia Fed President Patrick Harker, a voter on the Federal Open Market Committee, said in an interview with the Wall Street Journal on Tuesday that if inflation did not move toward the Fed's 2 percent target, then this would be a reason to hold off raising rates.

The euro added 0.1 percent to $1.1473 , within sight of the previous session's 14-month high of $1.1480.

The Canadian dollar was slightly higher against its U.S. counterpart as investors awaited a Bank of Canada interest rate decision later on Wednesday.

While forecasters remain divided on whether the central bank will raise rates, data from the overnight index swaps market showed that money markets have priced in a hike, as well as a second hike before the end of the year.

(Editing by Sam Holmes)