ECB hikes 25 basis points.

The ECB increased interest rates by 25 basis points at the latest council meeting which was in line with consensus forecasts. There was, however, a shift in guidance with no formal commitment in the statement that there would be further rate hikes. The bank stated that it is determined to bring inflation down and will be dependent on data releases.

According to bank President Lagarde the outlook for inflation still offers substantial upside risks and longer-term inflation expectations warrant monitoring. She also noted that wage pressures have strengthened further. As far as policy is concerned, she added that the interest rate increases were being transmitted strongly.

According to Lagarde everyone on the council agreed that interest rates needed to be increased and some members pushed for an increase of 50 basis points.

She added that it is very clear that the central bank is not pausing and that the bank is independent from the Fed.

The Euro lost ground after the policy decision amid the shift in guidance and the dollar also gained support from weaker risk appetite.

The Euro recovered from lows on Friday with the ECB still considered more hawkish than the Federal Reserve over the next few months.

UK mortgage approvals increased to 52,000 for March from a revised 44,000 the previous month, although there was only a marginal increase in overall mortgage lending. There was a faster rate of increase in consumer credit growth for the month. Confidence in the UK economy continued to edge stronger.

The Norges Bank increased interest rates by 25 basis points to 3.25% at the latest policy meeting, in line with consensus forecasts. Given the inflation profile, the bank expects a further rate hike in June.

The latest US employment report will be released on Friday with consensus forecasts for an increase in non-farm payrolls of around 180,000 with the unemployment rate ticking higher to 3.6%. Average earnings are expected to increase 0.3% on the month.

The Euro held a firm tone into the ECB policy meeting. The statement triggered sharp Euro losses with no commitment to further rate hikes. EUR/USD dipped to 1.1000. Lagarde’s rhetoric triggered a tentative Euro recovery. EUR/USD dipped again to re-test 1.1000 as banking fears triggered defensive US dollar support. There was a fresh rebound on Friday with EUR/USD around 1.1035.

The yen gained further support amid the defensive risk tone. USD/JPY dipped below 134.00 and settled just above this level on Friday.

The franc was also supported by weaker risk appetite. EUR/CHF dipped to 0.9750 with while USD/CHF failed to hold a recovery to 0.8865 and traded around 0.8835.

Sterling was resilient amid a limited re-rating of the UK outlook. GBP/USD held above 1.2550 and posted fresh 11-month highs above 1.2600 on Friday.

Commodity currencies were resilient on Thursday and posted gains on Friday. The Australian dollar was resilient with AUD/USD around 0.6675 on Thursday. The hawkish Reserve Bank minutes underpinned the Australian currency. AUD/USD strengthened to 2-week highs around 0.6740. USD/CAD also initially edged lower to 1.3575 on Thursday and posted further losses to 1.3510 on Friday.

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