ECB minutes emphasise inflation threat.

According to minutes from the March meeting, many members considered that the inflation pressures demanded immediate further steps towards monetary policy normalisation and wanted a clear timetable to end bond purchases and prepare for higher interest rates.

There were, however, clear splits within the committee as other members wanted to wait for further developments. There will be further divisions at next week’s meeting with President Lagarde having to find a compromise solution amid expectations of a more hawkish overall stance.

There was a further element of market caution ahead of Sunday’s French Presidential election with opinion polls indicating only a narrow lead for President Macron.

Caution maintained a reluctance to buy the Euro ahead of the weekend, although there will be scope for limited short covering if there is a convincing win for Macron on Sunday.

US initial jobless claims declined to 166,000 in the latest week and well below consensus forecasts of 200,000. The data for the previous week was revised sharply downward to 171,000 from the originally reported figure of 202,000.

Continuing claims, however, increased to 1.52mn from a revised 1.51mn with the previous week’s figure revised sharply higher. Although there appeared to be significant distortions in the data, the evidence still indicated a tight labour market.   St Louis Fed President Bullard stated that there were major uncertainties where the US would find necessary labour.

The combination of a hawkish Federal Reserve stance and notable reservations over the Euro outlook continued to underpin the US dollar, especially with commodity currencies also losing ground.

The dollar trade-weighted index overall posted the highest level since May 2020 with all major currencies struggling against the US currency.

The latest NATO meeting was held on Thursday and there were further warnings over a prolonged conflict in Ukraine. There are very strong expectations that Russia will launch a full-out assault in the Donbas region and NATO has made commitments to provide more military equipment.

This combination has increased concerns over an extended conflict which would exacerbate underlying market concerns over global inflation and the Euro-zone outlook.

Canada will release its latest employment report on Friday with consensus forecasts of an employment increase of around 77,000 following the surge of 336,000 last month.

The unemployment rate is forecast to edge lower to 5.4% from 5.5%.

Strong data would reinforce expectations of a hawkish rate hike at next week’s Bank of Canada policy meeting.

Underlying concerns surrounding the Euro-zone outlook continued to sap Euro support. Markets were also wary over the French Presidential election. In this environment, the Euro continued to hit selling interest on rallies. Overall yield spreads also continued to support the dollar. EUR/USD was unable to hold above 1.0900 and retreated to 1-month lows near 1.0850.

Higher US yields undermined the yen. There was, however, some caution over the risk of a shift in Bank of Japan policy stance. USD/JPY peaked around 124.20 before correcting slightly.

Sterling was held in tight ranges and dominated by global moves with wariness over risk conditions sapping potential support. GBP/USD was held below 1.3100 and retreated to near 1.3050 amid wider dollar gains. GBP/EUR gained ground and rallied to 2-week highs near 1.2025.

Commodity currencies lost ground but recovered slightly from intra-day lows. AUD/USD was held below 0.7500 amid unease over Chinese trends and traded around 0.7480. USD/CAD moved above 1.2600 before fading to 1.2580 ahead of the jobs data.

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