TOKYO, July 28 Reuters The dollar dropped to a threeweek low versus the yen on Thursday after Federal Reserve Chair Jerome Powell assuaged investors39; worries about continued aggressive monetary tightening.

The U.S. currency sank as low as 135.105 yen , its weakest since July 6 after the Fed raised the benchmark rate by an asexpected 75 basis points to bring it closer to neutral, while noting that although the labour market remains strong, other economic indicators have softened. 

The dollaryen is highly sensitive to shifts in U.S. yields, which slid after Powell said that based on the strength of employment, he didn39;t believe the economy was in recession, and that a recession was not necessarily required to tame superheated inflation.

The dollar lost a little bit of altitude because I think the market was bracing for the potential of Fed chair Powell to sound a little bit more hawkish, said Rodrigo Catril, a senior FX strategist at National Australia Bank.

The markets sort of focused on his comments around the fact that we are getting very close to neutral, Catril said. There39;s potential now to slow down the pace of hikes, and the market likes that.

The dollar was last down 0.8 at 135.525 yen.

The twoyear Treasury yield , which is especially sensitive to policy expectations, sagged near its lowest level this week at 2.9979.

It remained about 20 basis points above the 10year yield though, widely seen as signalling a looming downturn.

Whether the U.S….