Sterling and the euro ticked higher against the US dollar on Friday after apparent intervention by Japanese authorities in the yen market unsettled already thin liquidity. Traders interpreted the moves as Tokyo stepping in to sell dollars in USD/JPY, prompting cautious positioning across currency markets.
As of 04:40 ET (08:40 GMT), GBP/USD was up 0.04% at 1.3606, while EUR/USD had advanced 0.11% to 1.1744.
Market participants widely believe Tokyo sold dollars against the yen on Thursday. ING strategist Chris Turner described the operation as the opening salvo of what could become a prolonged campaign designed to keep USD/JPY below the 160 mark.
Turner and other market watchers noted that the playbook echoes earlier action in 2024, when Japan deployed just over $30 billion in two operations in late April and early May. Those interventions pushed USD/JPY down to around 152 at the time, although the pair moved back above its prior high roughly two months later.
With public holidays reducing market depth across Japan and Europe, investors are on alert for potential follow-up operations early next week should authorities choose to act again. Thin trading conditions heighten the impact of such interventions and can amplify short-term moves.
Despite the dollar retreat, ING cautioned against assuming a sustained downtrend in the greenback. The firm pointed to continued tensions in the Gulf - noting that Iranian hardliners have shown no signs of conciliation - and said the recent dip in crude futures could be short-lived. ING expects the US dollar index (DXY) to find support near 98.00 and to drift back toward 98.50, adding that a lasting dollar bear market would likely require clearer developments in the Gulf.
Turning to European currencies, ING said Thursday's European Central Bank meeting left little lasting imprint on the single currency. The 10 basis point fall in short-dated euro swap rates was attributed more to moves in oil than to any change in ECB messaging. Markets still price roughly a 90% chance of an ECB rate rise in June, and ING favours EUR/USD trading within a 1.1650-1.1750 range in the near term.
Sterling's outlook remains uncertain. ING suggested the Bank of England is positioning for a possible June rate increase, even though some market participants interpreted the Bank's recent communications as dovish. Turner attributed that dovish reading mainly to the oil-driven decline in GBP swap rates rather than to any explicit change in BoE guidance. ING also flagged EUR/GBP support around 0.8600-0.8610 as vulnerable in holiday-thinned trade.
Friday's US calendar contained several items investors were watching closely: the April manufacturing ISM release and a television appearance by Federal Reserve Governor Stephen Miran, the first Fed speaker following this week's split Federal Open Market Committee decision. Miran was expected to sound dovish. Still, Turner noted that rising inflation expectations and a more cautious Fed stance mean markets are likely to struggle to price in meaningful easing unless oil falls materially further.
Market snapshot (selected):
- GBP/USD: 1.3606, +0.04% (04:40 ET / 08:40 GMT)
- EUR/USD: 1.1744, +0.11%
- ING expectation: DXY support near 98.00; drift back to 98.50
- EUR/USD near-term range per ING: 1.1650-1.1750
- EUR/GBP support noted at 0.8600-0.8610