Key Takeaways

• Modest gains for sterling and euro: GBP/USD rose 0.04% to 1.3606, while EUR/USD added 0.11% to 1.1744 in thin trading.
• Yen intervention echoes 2024: Japan’s suspected move recalls last year’s $30 billion-plus operations, which briefly dragged USD/JPY to 152 before the pair surpassed its prior high just two months later.
• Holiday-thin liquidity: Public holidays across Japan and Europe are amplifying volatility, with traders bracing for potential follow-up action next week.
• Dollar pullback may not last: ING’s Turner warned that Iranian hardliners show no signs of softening, and the dip in crude futures could prove fleeting.
• US focus today: Markets are watching the April manufacturing ISM and Fed governor Stephen Miran’s TV appearance — the first Fed speaker after this week’s split FOMC decision.
• Easing bets capped: Rising inflation expectations and a cautious Fed mean fresh easing won’t be priced in until oil turns materially lower.
• June ECB hike still on: Markets are pricing roughly a 90% probability of a June rate hike, with ING favoring EUR/USD in a 1.1650-1.1750 range.
• BoE setting up June hike: Despite some market reads of Thursday’s communication as dovish, Turner argues the Bank of England is laying groundwork for a June increase.

Sterling and the euro edged higher against the dollar on Friday after suspected Japanese currency intervention sent ripples through thinly traded markets, though analysts cautioned that the greenback’s retreat was unlikely to last.

As of 04:40 ET (08:40 GMT), GBP/USD rose 0.04% to 1.3606, while EUR/USD gained 0.11% to 1.1744.

Echoes of 2024’s Intervention Playbook

The current dynamic mirrors 2024, when Japan deployed more than $30 billion across two operations in late April and early May, dragging USD/JPY to 152 — though the pair surpassed its previous high just two months later.

With public holidays thinning liquidity across Japan and Europe, investors are bracing for potential follow-up action early next week.

ING’s Turner cautioned against reading too much into the dollar’s pullback. Iranian hardliners have shown no signs of conciliation, and the dip in crude futures may prove short-lived.

US Data and Fed Speakers in Focus

Friday’s U.S. focus turns to the April manufacturing ISM reading and a television appearance from Fed governor Stephen Miran — the first Fed speaker after this week’s split FOMC decision. Although Miran is expected to strike a dovish tone, Turner noted that rising inflation expectations and a more cautious Fed mean markets will struggle to price in fresh easing until oil prices turn materially lower.

Euro Holds Its Range

For the euro, ING said Thursday’s ECB meeting had limited impact on the single currency, with the 10 basis point drop in short-dated EUR swap rates attributed more to oil price moves than to any policy signal.

A June ECB rate hike remains priced at around 90%, and ING favors EUR/USD holding within a 1.1650-1.1750 range near term.

Sterling Picture Remains Murky

Sterling’s outlook remains less clear. Turner argued that the Bank of England is laying the groundwork for a June hike, even as some market participants interpreted Thursday’s communication as dovish — a reading he attributed largely to the oil-driven fall in GBP swap rates rather than any genuine shift in guidance.