A look at the day ahead in European and global markets from Tom

Westbrook

After a 0.1% surprise on U.S. inflation sent yields and the

dollar back to pre-Christmas highs, even greater focus falls on

the European Central Bank's perceived willingness to cut rates.

Markets expect no changes at the ECB's policy meeting today,

though it could signal that a rate cut is coming as soon as

June.

Unlike in the U.S., data showed euro zone inflation

unexpectedly fell in March. The currency bloc is in its sixth

straight quarter of economic stagnation and the labour market is

starting to soften.

However, with markets not fully pricing the Fed to cut now

until November, flagging a move in June would put European

policymakers in the unfamiliar position of being ahead of the

Fed.

Prior to the U.S. inflation data, speculation that this

might be uncomfortable, and that the ECB meeting presents

hawkish risks, had supported the euro and, at $1.0745

in Asia on Thursday it has stayed above chart resistance at

$1.0724.

The dollar's big move higher has also turned the blowtorch

back on the yen and the yuan.

The yen has weakened past the 152-per-dollar level that

traders had been so keenly watching for intervention, hitting a

34-year low. Japan's finance minister and top currency diplomat

both said all options were on the table.

Neither, however, said whether the move was "excessive". The

yen rose slightly on crosses and to 152.82 per dollar.

China's central bank pushed back against yuan weakness by

fixing its trading band more or less steady, in spite of the

overnight jump in the dollar - opening up the biggest gap

between the fix and market expectations since at least 2018.

Fitch cut its outlook on China's sovereign credit rating to

negative on Wednesday and Beijing and Washington are at

loggerheads over the effects of China's perceived excess

manufacturing capacity. China's consumer inflation cooled more

than expected in March and producer price deflation persisted.

Elsewhere, Lufthansa suspended flights to Tehran with the

Middle East on alert for possible Iranian retaliation over a

suspected Israeli air strike on Iran's embassy in Syria. Brent

crude futures are up 3.7% in April so far, along with

other commodity prices, adding to inflationary pressures.

U.S. President Joe Biden and Japanese Prime Minister Fumio

Kishida unveiled plans for military cooperation and projects

ranging from missiles to moon landings, strengthening their

alliance with an eye on countering China and Russia.

Key developments that could influence markets on Thursday:

ECB policy decision

U.S. PPI