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Europe was waiting for the European Central Bank to lay out its latest interest rate cut plans on Thursday after the Federal Reserve had hinted at its first cut in years again and the Bank of Japan had set the yen on another tear higher.

While stock [.EU] and bond market [GVD/EU] traders were in their usual pre-ECB holding patterns, FX dealers were watching the Japanese currency enjoy its strongest day of the year so far with a more than 1% jump. [FRX/]

Japanese workers' nominal pay in January grew 2%, overnight data had showed. The country's major employment union had also won big pay hikes in 2024 wage talks, while BOJ board member Junko Nakagawa signalled her conviction that conditions for phasing out negative rates were now falling into place.

With economists speculating that could now happen as soon as this month, the yen charged up to 147.90 per dollar and 161.22 to the euro, which for both was the highest in at least three weeks.

Attention was already turning though to the ECB later where the Bank is set to keep its interest rates steady at a record 4.0%. The focus will be on any messaging it provides about a potential cut in coming months.

Isabelle Vic-Philippe, a euro zone bond fund manager at Amundi, said markets were now "close to fair value" pricing in 3-4 ECB cuts this year starting in June.

One of the questions both she and many investors have though is whether the ECB or the Fed will be the first out of the blocks.

"I think the ECB can afford to cut a bit earlier if they are convinced the Fed will follow shortly afterwards," Vic-Philippe said. "My question (for ECB head Christine Lagarde) would be where do you think the neutral rate for the ECB now stands."

The ECB will also publish new staff macroeconomic projections that are expected to prune both its inflation and growth forecasts for this year.

Futures are almost fully priced in for a first rate cut from the ECB in June, with a total easing of 88 basis points expected for all of this year.

FED WATCH

On Wednesday, Wall Street had closed higher after Federal Reserve Chair Jerome Powell stuck to the script by saying the Fed still expects to cut rates later this year, even though continued progress on inflation "is not assured". [.N]

That kept bets of a U.S. rate cut in June alive at an 84% probability. Longer-term bond yields slipped, the dollar fell, gold prices hit a record high and oil had jumped on Wednesday.

"There was nothing particularly surprising within Fed Chair Powell's prepared monetary policy testimony to Congress," said James Knightley, chief international economist at ING.

"More data is required, but with more evidence of a cooling jobs market we still think they can cut rates from June."

Indeed, data showed U.S. private payrolls increased slightly less than expected in February, although the report does not have a strong correlation with the official non-farm payrolls report due on Friday.

There was little cheer in markets to the better than expected China trade figures overnight in Asia, however, after an official from the state planner flagged the upside surprise a day earlier.

Chinese bluechips fell 0.4%, weighed by a 3.3% plunge in the healthcare sector on the news that a U.S. bill targeting Chinese biotech companies like BGI and WuXi AppTec was moving ahead.

The sharp rally in the yen had also seen the Nikkei slide back 1.4% after it had hit a fresh all-time high earlier in the session. [.T]

Commodity prices gyrated on the weaker dollar. Gold prices rose 0.4% to $2,156.49, another record high.

Oil prices were mostly lower, however, having jumped 1% the previous session. Brent drifted back to $82.27 a barrel[O/R], while bitcoin hovered near record highs at $66,361 in the sizzling cryptocurrency markets.