ECB’s Lagarde: We'll decide on rates meeting by meeting

European Central Bank President Christine Lagarde indicated on Friday that the bank's interest rate decision will be determined through a series of meetings. She added that she does not observe any signs of second-round inflation effects at this point. Lagarde also expressed that growth is more promising than anticipated. The central bank's decision on rates will be made "meeting by meeting."

Notably, there seems to be no new information that has caught the attention of financial markets, which explains why the Euro (EUR) has not experienced significant movement. As of the latest update, the EUR/USD exchange rate is slightly higher, trading near 1.1485. The Speechtracker shows a weaker impact from the speech, with a score of 4.4/10, which is notably lower than Lagarde's historical average of 5.7/10.

The comment about growth being "a bit more promising than we thought" lends a slightly hawkish tone, as it reduces the need for aggressive easing and keeps the downside risk for the Euro somewhat contained. However, the "meeting by meeting" approach and the admission of not seeing second-round effects yet suggest a cautious, data-dependent stance rather than a clear tightening bias.

Overall, Lagarde's speech was slightly hawkish compared to previous expectations, but the relatively muted score indicates that markets perceive limited new information, leading to more tactical moves rather than trend-changing developments. Sagar Dua, who has been following financial markets since his college days, notes that AUD/USD is showing a positive bias for the second consecutive day, holding above 0.7100 during the Asian session on Friday.

Softer US bond yields have been keeping US Dollar bulls at bay. Additionally, hawkish comments from Reserve Bank of Australia (RBA) Governor Bullock are further bolstering rate hike expectations and supporting the Australian dollar. However, the hawkish outlook from the Federal Reserve, combined with geopolitical uncertainties, limits USD losses and caps the pair.

The USD/JPY pair reversed its earlier gain, reaching two-week highs near 157.30 in the European session on Friday. This was due to the Japanese Yen finding some relief from comments made by BoJ Governor Ueda at the post-monetary policy meeting press conference. Earlier in the day, the Bank of Japan (BoJ) raised the interest rate to 1.25% following a surprising 7-2 vote.

Gold has been attracting follow-through buying for the second consecutive day and has reached a fresh weekly high heading into the European session. US bond yields have retreated further from multi-year highs due to the recent pullback in crude oil prices, which helped alleviate concerns of runaway inflation. This, in turn, has supported the bullion.

Japan's ultra-low interest rates have been financing trillions of dollars in global investments for over a decade, making the Japanese Yen one of the world's cheapest sources of funding. With the BoJ expected to tighten policy again this week, that advantage may be entering a new phase. Most major economies have raised interest rates, but Japan remains the world's outlier in this regard.