The US dollar strengthened in relatively quiet trading due to the May Day holiday, showing notable resilience despite weaker-than-expected Q1 GDP data. The Japanese yen emerged as the weakest G10 currency following the Bank of Japan’s cautious stance, which included reduced growth and inflation forecasts and a delay in achieving its inflation goal. Meanwhile, the euro dipped slightly below $1.1290 but rebounded above $1.1330, and the British pound found support around $1.3275 after a retreat. The Canadian dollar also weakened, with the greenback recovering above CAD1.3820 after touching multi-month lows earlier. Markets largely dismissed the negative GDP report, viewing it as skewed by tariff-related trade and inventory activity.

Asia Pacific Markets

In Japan, the yen declined as the Bank of Japan opted to maintain its policy rate at 0.50% and revised its projections downward. The central bank halved its 2024 growth outlook to 0.5% and trimmed inflation expectations, postponing its target achievement until 2027. The dollar surged toward JPY144.75 amid this dovish tone.
Meanwhile, the Australian dollar has been fluctuating around the $0.6400 mark. Despite reaching its highest point since December earlier this week, it retreated after nearing $0.6450. Australia’s trade data revealed a sharp rise in its March surplus to A$6.9 billion, well above expectations. Export growth rebounded strongly after earlier declines, while imports fell sharply, contributing to a solid first-quarter trade performance.

European Markets

The euro slipped to its lowest level since mid-April, briefly breaching $1.1290 before recovering. It remains near key technical levels, and traders are closely watching for tomorrow’s preliminary April CPI, which is expected to show a slight drop in annual inflation. The euro’s recent gains and falling oil prices may prompt the ECB to lower its 2025 inflation forecast.
The British pound weakened for a second day but has bounced back above $1.3330. UK manufacturing data provided a slight boost, with April’s final PMI revised upward. However, economic sentiment remains cautious as local elections and soft mortgage and credit data weigh on outlook. Markets still anticipate several rate cuts from the Bank of England this year.

American Markets

Despite soft economic signals, including a weak private jobs report and Q1 GDP contraction, the US dollar remains supported. The Dollar Index rose to a multi-week high before settling around 99.70. Investors are eyeing key resistance near 100.00, which could confirm further bullish momentum. Today's economic releases are expected to have limited market impact unless unexpectedly strong. Weekly jobless claims take a back seat to tomorrow’s critical non-farm payrolls data. Other figures, including March construction spending and April’s ISM manufacturing index, are unlikely to shift market sentiment significantly. Elevated auto sales, likely accelerated by tariff concerns, may weigh on future demand as consumers front-load purchases.