This week was all about the speculative rally in the Japanese yen. Following the weekend elections in Japan which saw Shinzo Abe’s party win a majority in the upper house elections, the dollar gained against the yen as investors hoped for more stimulus expansion from Japan. Following his victory, Abe pledged more fiscal stimulus spending, and as the days go by, the markets expect to see a coordinated monetary and fiscal stimulus measures being unleashed by Japan. USDJPY surged on the news and closed the day higher at 102.79 recovering the declines from the previous four days. China’s inflation data was also released over the weekend which showed that consumer prices grew at the weakest pace in five years.

By Tuesday, the overnight political developments in the UK saw the conservative party elect a new leader in Theresa May. The succession was rather quicker than anticipated and helped to quell fears of prolonged uncertainty in the EU-UK relationship. The Sterling advanced on the news and managed to close above $1.32 following the developments.

In Europe, Germany’s Consumer prices were seen rising in June for the second month. Data showed that consumer price index increased 0.30% in June, up from 0.10% in May. Equity markets across the globe were also seen edging higher. The market rally was fuelled by speculation of action from the BoJ and Japan government and also expectations building up for a rate cut from the Bank of England’s meeting during the week.

The focus of the day was, however, the Bank of Canada’s meeting on Wednesday. It was widely expected that the BoC could be keeping rates unchanged. As expected the BoC’s meeting on Wednesday saw no change to interest rates and the BoC lowered its forecasts on some aspects.

Fed members, Esther George and James Bullard also spoke over the week. While Esther George maintained her view that interest rates were still low, James Bullard said that he expects to see one more rate hike over the course of the rest of the year.

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