An unconvincing performance by Bernanke would risk further selling pressure on the dollar.

The dollar pushed to highs around 1.4530 in New York on Wednesday before weakening back to around 1.4580 with conflicting pressures.

Headline retail sales rose 0.3% in January compared to expectations of a small decline while there was also a 0.3% underlying increase for the month. Gasoline sales were strong while there was further weakness in building materials sales. Although confidence will remain very fragile given that the underlying report was generally weak, the sales rise may dampen expectations of further aggressive Fed action to support the economy.

In this context, comments from Fed Chairman Bernanke will be watched very closely on Thursday for further evidence on the Fed’s attitude towards monetary policy. Signals of further aggressive rate cuts would tend to undermine the US dollar.

Although positive economic news should provide some dollar support, the data will also help ease risk aversion to some extent. This will tend to lessen defensive demand and solid data will, therefore, have a mixed impact on the US currency. The dollar was on the defensive on Thursday with losses to 1.4630 against the Euro.