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Markets keep poise as Yellen testimony looms

Not long to go now. Janet Yellen testifies to Congress on monetary policy at 3.00pm BST. In the meantime, sovereign bond yields are steady and the dollar is holding above its recent 10-month low.

The relative pace of the tightening cycle at central banks remains the big theme and it’s not just the chair of the Federal Reserve that’s getting attention.

The pound has taken a knock after Aberdeen’s Press and Journal newspaper revealed that the Bank of England’s deputy governor, Ben Broadbent, is not ready to vote for a rate rise. The remarks come with the BoE’s monetary policy committee split 5 votes to 3 to hold rates at its last meeting.

Sterling is down 0.2 per cent at $1.2815, having been flat before the publication of the interview.

The Bank of Canada makes a rate call, also at 3.00pm London time, and is expected to raise rates, by 25 basis points to 0.75 per cent , in what would be the first increase in almost seven years.

The Canadian dollar is 0.1 per cent stronger at $1.2906, around the 10-month peak of $1.2857 it hit on Friday.

The dollar index is at 95.741, up 0.1 per cent and established just above the 10-month lows it touched in late June, when there were dovish signals from Fed policymakers on the pace of its tightening cycle.

Brett Ryan, senior US economist at Deutsche Bank, says:

We expect Janet Yellen to present a relatively upbeat outlook and continue to guide market participants toward the commencement of balance sheet normalisation as well as another rate hike by year-end.

The Fed will most likely pause its rate hiking cycle at the September 20 meeting to announce the tapering of reinvestments, which would ostensibly begin in October. If there are no meaningful dislocations in financial markets related to tapering and incoming data continue to support the Committee’s growth and inflation outlook, we expect the Fed to resume hiking at the December 13 meeting.

European stocks are higher, with financial stocks in the lead and consumer stocks bouncing higher. The region-wide Euro Stoxx 600 is up 0.4 per cent, while Frankfurt’s Xetra Dax 30 up 0.3 per cent. London’s FTSE 100 is outperforming with a 0.7 per cent rise, helped by the weaker pound, which flatters its exporters.

Sovereign bonds are steady, with benchmark 10-year yields easing slightly across the eurozone and on US Treasuries as investors buy back into the debt after its recent sharp sell-off, which was prompted by expectations that the European Central Bank will look towards withdrawing its €60bn monthly stimulus spending. Germany’s 10-year debt yield is down 1 basis point at 0.543 per cent, with Italy’s flat at 2.305 per cent. US 10-year Treasury yields are down 1 basis point at 2.357 per cent.

Oil prices are continuing to rise after popping higher on Tuesday amid reports that US inventories fell last week.

Brent crude, the global benchmark, is up 1.3 per cent at $48.21 a barrel. West Texas Intermediate, the US marker, is up 1.6 per cent $45.73. Both ended the previous session up 1.4 per cent.