Calm before the ECB storm

Markets stay quiet early Thursday and major currency pairs continue to fluctuate in familiar ranges ahead of the European Central Bank’s (ECB) highly anticipated policy announcements. ECB President Christine Lagarde will deliver her remarks on the policy outlook and respond to questions from 12:30 GMT. The US Department of Labor’s weekly Initial Jobless Claims will be the only featured data in the US economic docket later in the day.

The ECB is widely expected to announce an end to its Asset Purchase Programme (APP) and confirm a rate hike in July. Previewing the ECB meeting, “the central bank’s economic projections will be watched out for, given that a July rate hike is already baked in,” noted FXStreet Analyst Dhwani Mehta. “Amidst looming recession risks, in the face of higher energy costs and supply chain crisis, a downgrade to the euro area growth estimates will not go down well with the EUR market should the ECB up its inflation forecasts.”

The US Dollar Index moves sideways near 102.50 for the third straight day on Thursday and the benchmark 10-year US Treasury bond yield holds comfortably above 3%. US stock index futures trade with small losses in the early European session, pointing to a cautious market mood. Earlier in the day, the city of Beijing reportedly suspended operations of all entertainment venues in the Chaoyang District from Thursday due to a COVID containment.

Meanwhile, US Treasury Secretary Janet Yellen reiterated that US President Joe Biden’s administration is looking to make tariffs on Chinese goods more “strategic” but this comment had little to no impact on risk sentiment. During the Asian session, the data from China revealed that the trade surplus widened to $78.76 billion in 12 months to May from $55.12 billion. This print surpassed the market expectation of $58 billion by a wide margin. Furthermore, China’s exports jumped by 15.3% last month, compared to analysts’ forecast of 3.1%.

EUR/USD rose to 1.0750 on Wednesday but ended up closing the day flat near 1.0720. The pair moves up and down in a narrow band near that level early Thursday.

GBP/USD edged lower on Wednesday following the two-day rebound and stays calm above 1.2500 in the European morning on Thursday.

USD/JPY turned south and declined below 134.00 after having touched its highest level in two decades at 134.54 on Wednesday. International Monetary Fund’s (IMF) Japan mission chief, Ranil Salgado, said earlier in the day that a weak Japanese yen would help the Bank of Japan (BOJ) reach its inflation target but would also impact households negatively.

Gold failed to make a decisive move in either direction on Wednesday and closed flat near $1,850. XAU/USD extends its sideways grind near that level despite rising US Treasury bond yields.

Bitcoin lost 3% on Wednesday but manages to hold above the key $30,000 level. Ethereum continues to trade near $1,800 after having registered small losses in the previous two days.

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