SINGAPORE The dollar was poised for its fourth week of gains as investors braced for higher U.S. interest rates to be higher for longer, while the yen was volatile, with incoming Bank of Japan Governor Kazuo Ueda saying it was appropriate to keep ultra-loose monetary policy.
The number of Americans filing new unemployment benefits unexpectedly fell last week, underscoring a still-tight labor market and a resilient U.S. economy, according to overnight data.
The dollar erasing its year to date losses because investors digested the prospect of the Fed staying on its monetary tightening path for longer, because of strong U.S. economic data and hawkish rhetoric from Fed officials this month.
The dollar index, which measures the U.S. currency against six other rivals, was at 104.54 on Friday, hovering around the near seven-week high of 104.78 it touched on Thursday.
The index is up 2.5 per cent for the month.
The jobless claims data shows that the U.S. labour market is in a rude health, according to Rodrigo Catril, senior currency strategist at National Australia Bank.
The Fed still has more work to do, according to the U.S. overnight data. The market is expecting a deep rate cut this year, as the U.S. rates will peak at 5.34 per cent in July and remain above 5 per cent until the end of the year.
The Fed prefers inflation measure to the U.S. personal consumption expenditures price index for January will be the focus of investors' attention. The index, due to be released later on Friday, is expected to be up 0.4 per cent on a month-on-month basis.
The euro was down 0.04 per cent at $1.0599 and was poised to end the week nearly 1 per cent lower. The pound was trading at $1.2018, up 0.04 per cent.
The Australian dollar was up 0.10 per cent to $0.681. The kiwi increased by 0.06 per cent to $0.623.
In a surprise move, BOJ chief Ueda, who was nominated earlier this month, took centre stage in early Asian hours as he spoke at the lower house confirmation hearing.
Ueda warned that uncertainties regarding Japan's economic recovery remained very high, warranting the BOJ to maintain its ultra-loose monetary policy.
The yen was volatile and swung between gains and losses against the dollar through the day. The Asian currency increased by 0.03 per cent to 134.68 per dollar.
The yen could embark on a weak trend once again once we are past this volatility, said Charu Chanana, market strategist at Saxo Markets in Singapore, due to his neutral comments against market hawkish expectations and rising global yields.
Japan's core consumer inflation hit a new 41 year high in January, putting renewed pressure on the central bank to phase out its massive stimulus programme, according to data released on Friday.
The surprise choice of Ueda as the next BOJ governor sparked expectations that the end of the unpopular yield curve control YCC policy would be around the corner.
Analysts said Ueda's comments were not a surprise and that he stuck to BOJ's current position.
OCBC currency strategist Christopher Wong said that the Ueda was likely to adopt a gradual and moderate approach as he monitors further data in order to get a better sense of economic conditions in Japan.
It is still early to form an impression of his policy leaning at this point. In the latest Reuters poll, two-thirds of BOJ watchers think the central bank will start unwinding its policy in April or June. A majority of the population said that Japan's negative interest rate policy was likely to stay at least until the second half of 2024.