YELLEN POINTS TO FURTHER RATE HIKES AND BALANCE SHEET REDUCTION BUT CAUTIONS ON INFLATIONS

JANET YELLEN TESTIMONY

Federal Reserve Chair Janet Yellen struck a hawkish tone this week, as she delivered her semi-annual testimony on Capitol Hill. Janet Yellen said in her prepared testimony to lawmakers that the Federal Reserve "continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time."

Janet Yellen also mentioned reductions in the Federal Reserve's portfolio of more than four trillion U.S Dollars in securities are likely to begin "this year." The FED chair also addressed the issue of below trend inflation in the United States, and said "a few unusual reductions in certain categories of prices" are weighing on inflation, and they would eventually drop out of the calculation.

Global stock markets and commodity currencies rose sharply after Janet Yellen's two day testimony to congress, as financial markets expect the Federal Reserve to be more gradual than expected in monetary policy tightening.

BANK OF CANADA RAISES RATES

The Bank of Canada raised its key interest rate as expected to 0.75 per cent, the rate hike was the first move upward in the cost of borrowing in seven years.

Following the rate hike, the Canadian dollar moved sharply higher against all G-7 counterpart currencies, with the Canadian dollar hitting a Ten month trading high against the U.S dollar, hitting $1.2670.

Speaking at a news conference on Wednesday in Ottawa, Bank of Canada governor Stephen Poloz, acknowledged that the bank raised its key rate despite inflation currently lagging below its stated target of two per cent, and the BOC considers that weakness in inflation to be temporary.

UK UNEMPLOYMENT RATE

The United Kingdom unemployment rate dipped from 4.6 percent to 4.5 percent in the three months to May, beating forecasts, and moving the UK unemployment rate to a Forty- Two year low.

UK unemployment has dropped by 152,000 in the last year, whilst the overall employment rate hit 74.9 per cent – the highest since comparable records began.

The British pound soared higher on the better than expected jobs data, moving towards the key 1.3000 level against the U.S dollar.

EURO HITS EIGHT MONTH HIGH AGAINST THE POUND

The EURGBP cross pair surged this week, reaching a new eight-month trading high, at 0.8946, and moving the EURGBP pair to its highest trading level since the November 2016 U.S election.

In early week trading, the single currency also moved to multi-month trading highs against the U.S dollar, and the Japanese Yen. The EURUSD pair moved to 1.1489, whilst the EURJPY cross pair briefly moved above its 200 week moving average, hitting 130.76.