BOJ Steady As US Inflation, Yellen Speech Key Ahead Of Long Weekend

The US dollar returned some of its recent gains versus other majors in what has been overall a good week for the greenback after the pummeling it received the previous few weeks. The Bank of Japan’s decision to hold policy steady seemed to have little effect on the yen, as USD/JPY dropped back below 121 at 120.70.

Lackluster economic data again out of the United States the previous day was the reason for the pullback in the dollar, as the market is following the Fed’s guidance and become more data-dependent itself. Jobless claims were a little higher than expected at 274 thousand, Markit manufacturing PMI was at 53.8 versus 54.5 expected and existing home sales for April were down 3.3% month-on-month instead of up 1% as expected. The Philadelphia Fed index of manufacturers also missed expectations by dropping instead of rising during May. All this caused a mild sell-off in the dollar as the market tries to adjust the dollar’s value to reflect the economic outlook and the probabilities of a rate hike later this year.

The Bank of Japan decided to keep its annual bond purchasing target at 80 trillion yen as it also sounded slightly more upbeat about the economy’s prospects despite the weak 1st quarter GDP data that was announced earlier in the week. This means that no further stimulus would be implemented for now – a message that was reaffirmed by Governor Haruhiko Kuroda during his press conference.

There was apparently little that was newsworthy after meetings between EU leaders in Riga, Latvia concerning progress towards a deal that would give Greece more aid in return for reforms. The euro was trading around 1.1150 versus the dollar and holding around 134.50 versus the yen.

For the remainder of the day, plenty of statistics and central bank speeches should keep traders focused before a very slow day on Monday as the US, the UK and plenty of European countries are on holiday. Firstly, the German IFO economic sentiment survey will present the latest trends within Europe’s largest economy as Germany disappointed somewhat in the Markit PMI numbers. Throughout the European session, expect headlines from the central banking conference in Sintra, Portugal. Later during the US session, April inflation data and Yellen’s all-important speech afterwards, should give plenty of cues to traders in what is expected to be an interesting day before Monday’s quiet and thin markets.