Fed hikes 25 basis points.

ADP data recorded an increase in private payrolls of 296,000 for April after a revised 142,000 increase the previous month and well above consensus forecasts of 150,000 for the month. The ADP reported that wages growth had slowed to 6.7% over the year from 6.9% previously with the company commenting that the main focus in the labour market was a slowdown in wages growth.

The ISM non-manufacturing index edged higher to 51.9 for April from 51.2 previously and marginally above market expectations. Business activity increased at a slower rate on the month, but new orders increased at a stronger rate while there was only a slight increase in employment.

The rate of price increases was unchanged on the month with significant price increases continuing.

The Federal Reserve increased interest rates by 25 points to 5.25% at the latest policy meeting which was in line with expectations and the vote was unanimous.

It commented that inflation remains elevated, and the Fed is highly attentive to inflation risks. The statement, however, dropped references that it anticipates some additional tightening may be appropriate.

The Fed will consider the tightening seen so far, together with economic and financial developments, to determine whether further tightening is needed. It added that tighter credit conditions are likely to weigh on economic activity and inflation.

According to Chair Powell, there are signs of the labour market coming into better balance and there is evidence that wages growth has shown some signs of easing.

He noted that the economy is likely to face headwinds from credit conditions, although there is a high degree of uncertainty.

He stated that there was not a formal pause for June. And reiterated that the Fed would have to monitor the data releases and economic developments closely.

Overall, Powell was notably non-committal in tone, but did add that it was possible that rates had peaked.

The dollar overall lost ground following the Fed statement, especially with expectations that rates would be cut later this year.

Markets also remained uneasy over the US banking sector amid further losses in regional banks.

EUR/USD tested 12-month highs while USD/CHF slumped to 28-month lows and GBP/USD hit 11-month highs. The dollar index held just above 12-month lows.

Oil prices were under pressure on Wednesday and spiked lower in Asia on Thursday amid a lack of liquidity. At the same time, gold spiked higher to near record highs before correcting lower.

The ECB will announce its latest policy decision on Thursday. Consensus forecasts are for a further increase of 25 basis points to 3.75% with some speculation that there could be a 50 basis-point hike.

Forward guidance will be an important component for the Euro and overall asset classes.

The Euro edged higher into the Fed policy decision, although overall ranges were limited. EUR/USD posted gains in an immediate response to the Fed statement but was capped just below 1.1100. The dollar recovered slightly as Chair Powell declined to adopt a more dovish stance in the press conference. EUR/USD settled close to 1.1050 before again rallying to near 1.1100 on Thursday as the dollar lost ground again and close to 12-month highs.

The yen strengthened as US yields declined but failed to hold intra-day highs on Wednesday. USD/JPY initially found support below 135.00 but rallies were faded and USD/JPY dipped below 134.50 on Thursday.

The Swiss franc maintained a firm tone as US yields declined. EUR/CHF dipped to 0.9800 with a USD/CHF slide to 28-month lows at 0.8820.

Sterling posted gains as risk appetite stabilised. GBP/USD posted 11-month highs just below 1.2600 and held gains in early Europe on Thursday.

Commodity currencies posted net gains but retreated from intra-day highs on Wednesday. AUD/USD settled around 0.6675 before a limited net gain to near 0.6700 on Thursday. The Canadian dollar was resilient despite a slide in oil prices. USD/CAD was unable to hold below 1.3600 on Wednesday but retreated again to near 1.3580 on Thursday.