The dollar held to gains against the yen and euro on Friday, awaiting US data later in the day that could set the greenback's tone. The dollar was little changed at 108.86 yen after gaining about 0.6 percent overnight. The US currency, which had hit an 18-month low of 105.55 yen last week after the Bank of Japan stood pat on monetary policy, was on track to rise 1.8 percent on the week. Verbal warnings by Japanese authorities over the past week have so far helped cool the yen's rally.
The euro was effectively flat at $1.1371 after shedding 0.4 percent on Thursday. The dollar was buoyed overnight as US Treasury yields rose when Boston Federal Reserve President Eric Rosengren said the Fed should raise interest rates if data confirms a stronger jobs market and inflation outlook in the second quarter. He added that the markets are too pessimistic on the economy. The currency market will have a chance to gauge the underlying strength of the US economy through a batch of data to be released later in the day.
"In terms of impact on the dollar, April retail sales data will be key, especially since a high rise is expected. The University of Michigan consumer sentiment index also bears watching," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo. The April US producer price index (PPI) is also due later in the day. The dollar could face renewed pressure against peers like the yen if US economic indicators fall short of expectations, which would be a new potential headache for Japanese authorities who have managed to arrest the yen's appreciation by threatening to intervene.
"Japanese officials can keep up their verbal warnings and even actually intervene, but the fundamentals continue pointing towards a stronger yen - a view many speculators appear to have embraced," said Junichi Ishikawa, forex analyst at IG Securities in Tokyo. "Japan's current account surplus continues to increase and US rate hike expectations for the year have been cut down from four to one. Furthermore, currency policy will likely become a topic in the US presidential elections, making it hard for Japan to intervene," he added, listing the factors favouring a strong yen.
Japan's current account surplus was largest since 2007 in March due to falling oil import costs and a hefty income surplus from overseas investment, Ministry of Finance data showed on Thursday. The United States has for years called on countries with current account surpluses to do more to lift their domestic demand, which has been perceived to be lacklustre.
The pound dipped slightly to $1.4437, having spiked briefly overnight to a two-week high of $1.4532. Sterling rose on Thursday after Bank of England (BOE) policymakers voted unanimously to keep interest rates unchanged, quashing talk that one or two might vote in favour of a cut. The BOE said sterling could fall sharply and unemployment would probably rise should Britain opt to leave the European Union - its starkest warning so far of the likely impact a "Brexit" would have.
The Australian dollar, weighed down recently by a central bank rate cut and a drop in the price of iron ore, remained on the back foot against a buoyant dollar. The Aussie fell to a fresh two-month low of $0.7286. It was poised to fall 1 percent against the greenback this week.