Fed minutes emphasise inflation threat.

Minutes from March’s Fed policy meeting recorded that all participants emphasised the importance of remaining vigilant to the danger of more upward pressure on prices and that it would be appropriate to quickly shift the stance of monetary policy towards neutrality.

Many participants stated that they would have liked a 50 basis-point increase at the meeting and also remarked that one or more 50 basis-point increases may be appropriate at future meetings, especially if inflation pressures stay elevated or intensify.

There was also agreement that it would be appropriate to start balance-sheet reduction soon, potentially as early as immediately after the May meeting.

Although the Fed minutes were hawkish in nature, there had already been a notable shift in market expectations and a surge in bond yields, especially after Brainard’s comments this week.

In this environment, hawkish rhetoric had been priced n and there was a small retreat in yields with a dip in oil prices also providing an element of relief. The US 10-year yield traded just below 2.60% on Thursday.

ECB chief economist Lane stated that it was important not to over-react to the inflation surge. He added that the bank can’t respond to current high inflation and the bank’s orientation is towards the medium term. Lane has maintained a consistently dovish stance and these comments suggested that the economics department will not be backing a tighter policy.

Confidence in the Euro-zone outlook remains notably fragile, but there will be an element of caution ahead of next week’s ECB policy meeting.

The first round of the French Presidential election will be held on Sunday. Market attention has been notably limited over the past few weeks, but there has been a spike of concern this week.

President Macron has maintained a lead, but a dip in support for minor candidates has allowed National Front leader le Pen to pick-up support and narrow the gap.

The Euro is likely to dip lower if Le Pen wins the first round or comes very close to Macron.

Markets braced for further Russian onslaught

Russian forces have pulled out of the north of Ukraine and there have been further allegations of war crimes against retreating forces.

There have been further sanctions on Russia including further action against the banking sector.

There will, however, still be strong pressure for sanctions against Russia’s oil and gas sector which will maintain uncertainty over energy-price trends.

Militarily, markets remain on alert for a further attack on the Donbas region.

Fears over a prolonged Ukraine conflict will maintain concerns over global inflation pressures.

Underlying concerns surrounding the Euro-zone outlook remain an important element. There were additional sanctions on Russia, but pressure remained for the EU to curb energy imports from Russia which maintained an important sense of unease.

EUR/USD peaked just below 1.0940 on short covering before fading again. EUR/USD dipped to 1.0880 after the Fed minutes before a recovery to just above 1.0900. US yields edged slightly lower which curbed potential yen selling. USD/JPY was held just below 124.00.

Sterling was unable to gain significant traction amid fragile risk conditions. GBP/USD was held below 1.3100 on Thursday with GBP/EUR around 1.1200.

The Swiss franc edged lower amid the focus on global yields, but selling was limited. USD/CHF edged higher to 0.9325.

Commodity currencies lost ground amid a firm dollar and losses in equities. AUD/USD dipped below the 0.7500 area to 0.7475 as China concerns also sapped support. USD/CAD posted net gains to just above 1.2550 as oil prices retreated.

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