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Dollar erases losses after Yellen signals tightening will continue

The dollar rallied to completely erase its losses in late afternoon trading on Wednesday after Federal Reserve chair Janet Yellen said softness in inflation won’t last, suggesting that policymakers will press ahead and raise interest rates one more time before the year ends.

The dollar, along with Treasury yields, dropped sharply earlier in the day after a duo of economic reports added to the spate of lacklustre data that have dampened the outlook for the US economy’s second-quarter performance.

But Ms Yellen’s comments on the strengthening labour market and how it is “important not to overreact” to individual data points underscore the Fed’s intent to continue its tightening cycle.

Yield on the US 10-year note trimmed its drop to just 8 basis points at 2.1308, having touched a 7-month low of 2.1013 per cent this morning.

Stocks were a mixed bag at the day’s end. In an echo of last Friday’s sell-off, the Nasdaq Composite abruptly tumbled as much as 1.1 per cent before rallying to close 0.4 per cent lower at 6.194.89. The Dow Jones Industrial Average — having spent most of the day trading sideways — made a last-minute run to finish 0.2 per cent higher and notched a new all-time closing high of 21,374.56. The S&P 500 edged 0.1 per cent lower at 2,437.92, held back by heavy losses in the energy sector after new inventory data pushed crude prices to a 7-month low.