Fed's Yellen to speak: stocks up, dollar sluggish

By Vikram Subhedar

LONDON (Reuters) - The dollar was stuck near its lowest level in more than a year against the euro on Wednesday while stocks edged higher in light trading ahead of Janet Yellen's testimony to Congress.

While the Federal Reserve chair is expected to say that the Fed still intends to steadily raise rates, any signals on how the bank is viewing a retreat in inflation and muted wage growth will be closely watched.

Comments overnight from two of her colleagues calling for caution on further interest rate rises have pushed back the probability of a hike again before the end of the year to 50 percent, according to the CME's Fed watch data.

"The Yellen testimony remains the key event risk in today's session but we remain optimistic about the dollar's outlook, and putting on a long position against the sterling is the best way to execute that view," said Adam Cole, head of FX strategy at RBC Capital Markets in London.

Sterling hit a two-week low against the dollar and deepened a fall to its lowest in eight months against the euro on Wednesday after Bank of England Deputy Governor Ben Broadbent said he was not yet ready to raise interest rates.

The fall in sterling once again lifted the exporter heavy UK bluechip index which rose 1 percent, outperforming regional peers.

European shares rose 0.8 percent with all major sectors in the green. Stock futures on Wall Street were up 0.1 percent.

U.S. stocks took a brief tumble during Tuesday trading on Wall Street after emails disclosed President Donald Trump's eldest son welcomed help from a Russian lawyer for his father's 2016 election campaign against Hillary Clinton.

But by the closing bell, Wall Street shares had clawed back their losses.

The dollar, however, failed to recover after the damage suffered from the new twist in the Trump campaign's alleged links with Russia.

The greenback was trading flat against a basket of major currencies and was hovering near its lowest since last May against the euro.

Investors were also bracing for a move on interests at the Bank of Canada. A Reuters poll forecast the bank to raise interest rates later in the day, which would be the first hike in seven years.

Goldman Sachs economists expect the bank to stand pat, citing in-line economic data and weak inflation.

In commodity markets, oil prices got a reprieve from worries about oversupply after the U.S. government cut its crude production outlook for next year and as fuel inventories plunged.

Brent crude futures rose 1.3 percent while U.S. West Texas Intermediate (WTI) crude futures were up 2 percent.

(Editing by Jeremy Gaunt and Hugh Lawson)