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U.S. Dollar Extends Decline As Yellen Backs Gradual Rate Hike Path


The U.S. dollar continued to be lower against its major counterparts in the European session on Wednesday, after the Fed Chair Janet Yellen asserted that the central bank is expected to raise rates gradually over time to attain inflationary target and sustain the economic expansion.

In her prepared testimony before the House Financial Services Committee, Yellen sounded upbeat on U.S. economy and said she expects additional gradual rate hikes to be appropriate over the next few years to sustain the economic expansion and return inflation to the Fed's 2 percent goal.

Yellen noted that there remains uncertainty about the outlook for inflation and said the Fed will be monitoring inflation developments closely in the months ahead.

The Fed Chief also said the central bank is likely to begin a program to normalize the size of its balance sheet this year.

Meanwhile, Federal Reserve Governor Lael Brainard on Tuesday hinted she is unconvinced that another rate hike is currently warranted.

"I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target," Brainard said.

She added, "If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off."

The dollar weakened in the Asian session, after emails released by Donald Trump Jr showed that he had a meeting with Russian-linked lawyer to help obtain information to incriminate Clinton during the presidential election.

Extending early fall, the greenback dropped to a 6-day low of 113.02 against the yen, compared to 113.94 hit late New York Tuesday. Continuation of the greenback's downtrend may see it challenging support around the 112.00 region.

Data from the Ministry of Economy, Trade and Industry showed that Japan's tertiary industry activity dropped in May after recovering in April.

The tertiary industry activity dropped 0.1 percent month-on-month in May, reversing a 1.4 percent rise in April. However, the pace of decrease was slower than the expected 0.5 percent fall.

The greenback that ended Tuesday's trading at 0.9638 against the Swiss franc dropped to a 5-day low of 0.9603. The greenback is poised to target support around the 0.95 region.

Pulling away from an early 2-week high of 1.2812 against the pound, the greenback weakened to 1.2907. The next likely support for the greenback is seen around the 1.32 area.

Data from the Office for National Statistics showed that the UK unemployment rate declined to the lowest since 1975.

The ILO jobless rate came in at 4.5 percent in three months to May versus 4.9 percent in the same period of previous year. The expected rate was 4.6 percent. This was the lowest since 1975.

The greenback fell back to 1.1480 against the euro, heading to pierce its early more than 1-year low of 1.1489. On the downside, 1.16 is likely as the next support level for the greenback.

Data from Eurostat showed that Eurozone industrial production growth improved more than expected in May.

Industrial output grew 1.3 percent on a monthly basis, faster than the revised 0.3 percent increase seen in April.

The greenback slipped to 0.7683 against the aussie, its lowest since July 3. Next key support for the greenback may be found around the 0.78 mark.

The greenback reversed from an early high of 0.7216 against the kiwi, falling to a 2-day low of 0.7280. If the greenback extends decline, 0.74 is possibly seen as its next support level.

The greenback pared its early gains against the loonie, with the pair trading at 1.2917. This may be compared to a high of 1.2939 hit at 7:30 am ET.

Looking ahead, at 11:55 am ET, the Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins will hold a press conference to discuss the monetary policy report in Ottawa, Ontario, Canada.

The Fed is scheduled to release its Beige Book on economic condition at 2 pm ET.

Kansas City Fed President Esther George is set to speak in Denver at 2:15 pm ET.

by RTTNews Staff Writer

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