Euro bounced back from the lows after Fed officials signaled their intention to keep interest rates unchanged in June, while leaving room for further increases in the coming months. This dealt a significant impact on the markets, especially ahead of the key employment report due out on Friday.

Governor Philip Jefferson, appointed as Vice Chairman and often shares the same view with Chairman Jerome Powell, said on Wednesday that holding off on rate hikes would give policymakers more time to assess data without hindering future tightening.

Over the past 14 months, the FOMC pushed rates up by 5 percentage points to 5.25%, citing high inflation that exceeds the target of 2%. Fed representatives stated that the rate being within the target range of 5% to 5.25% after a quarter-point increase in early May allows them to monitor data and change forecasts.

Arguments for pausing rate hikes usually base on the idea that monetary policy operates with a lag, so its full impact could not reflect in the economy and labor market completely. Moreover, recent bankruptcies of several US regional banks prompted Fed officials to seriously consider that further tightening of financial conditions will further reduce credit availability and worsen economic prospects.

Such a viewpoint undermines the significance of tomorrow's monthly employment report, which often influences monetary policy. After Jefferson's speech, investor expectations of a rate hike at the FOMC meeting on June 13-14 dropped to around 35%, from nearly 60% the day before. Just a day earlier, the markets expected the Fed's policy to remain fairly aggressive, as the latest inflation data in the US, specifically personal consumption expenditure, indicated another increase in pricing pressure.

Philadelphia Fed President Patrick Harker called for a pause in rate hikes, emphasizing that officials may instead move to raise rates at every other meeting.

As for tomorrow's data, forecasts point US non-farm payrolls to rise to 195,000 in May, while the unemployment rate to climb by only 0.1 percentage point to 3.5%. Lately, Powell and other Fed officials expressed their desire for the economy to slow to below-trend growth rates, and for the labor market to cool from what they consider overheating levels.

In terms of the forex market, euro is still bearish, but seeing growth is not impossible. For this, the quote has to remain above 1.0660, or reach 1.0710. This will allow a rise beyond 1.0755, heading towards 1.0790. In case of a decline around 1.0670, euro will fall to 1.0635 and 1.0595.

Pressure on pound eased, but to see further growth, the quote has to consolidate above 1.2440. Only that will trigger a much larger rise to 1.2480 and 1.2500. In case there is a decline, bears will attempt to take 1.2410 and 1.2380, which could lead to a fall to 1.2340 and 1.2310.