* Dollar moves off one-month low vs currency basket
* But expectations of loose Fed policy to weigh on dollar
* Japan PM Abe’s election win to see dollar/yen trade higher
* Euro zone PMIs on Wednesday are main focus for the euro
NEW YORK, July 23 (Reuters) - The dollar moved off a one-month low against a basket of currencies on Tuesday as investors bet that recent declines were too far, too fast even amid the debate about when the Federal Reserve would begin to slow stimulus measures.
Fed Chairman Ben Bernanke’s dovish rhetoric has emphasized that central bank bond buying will continue in some form and U.S. rates are likely to remain low for the foreseeable future.
Benchmark yields have fallen as other top Fed officials have stressed that the timing of any reduction in the central bank’s $85 billion monthly asset purchases would depend on economic data.
All of this, alongside some weaker than expected U.S. data, prompted a dollar selloff to key support levels. Further downside will require another round of bad data, analysts said.
“After reactions and overreactions, global markets seem now to have learned that tapering does not mean hikes,” said Jose Wynne, head of FX research at Barclays in New York. “This looks about right. Hence, we expect participants to look into fundamentals to learn about future directions.”
The dollar index rose 0.1 percent to 82.217, having touched a low of 82.047 on Monday, its weakest since June 21.
Analysts said the dollar was still likely to strengthen in the coming months against currencies such as the euro, sterling and the yen, as the Fed is expected to be the first major central bank to make its policy less accommodative.
But few anticipate the dollar’s rise to be smooth.
Benchmark U.S. 10-year Treasury yields, which have had a robust correlation with the dollar index, have slipped in recent weeks. They last stood at 2.5237 percent, slightly up on the day but well below the 2.755 percent hit on July 8, their highest since August 2011.
“Ten year U.S. Treasury rates have stabilized in a range that is broadly consistent with a more normal risk premia,” Wynne said.
The dollar was up 0.3 percent at 99.97 yen, recovering from a one-week low of 99.13 yen earlier.
Analysts said Japanese Prime Minister Shinzo Abe’s decisive upper house election win last weekend would pave the way for pro-growth fiscal policies and for further Bank of Japan monetary easing, which would weaken the yen.
The dollar is up more than 15 percent versus the yen this year and the recent slide in dollar/yen has likely bottomed out, according to trends in the options market.
The euro was 0.7 percent higher at $1.3192 but off Monday’s one-month high of $1.3218.
Investors are looking to flash Purchasing Managers’ Index data on Wednesday as, despite the euro’s recent resilience, worries about euro zone economies are re-emerging. Analysts said any rebounds in the euro would probably be sold into.
Analysts said the onset of holidays had reduced volumes and volatility and this could see most currencies trading in ranges.
Just US$2.7 billion in euros had changed hands, according to Reuters Dealing data on Tuesday, and US$1.83 billion in yen.