Japan's consumer inflation held steady above the central bank's target in March, data on Friday showed, with a key index hitting a four-decade high, putting pressure on the Bank of Japan (BOJ) to shift away from its ultra-loose monetary policy stance. Elsewhere, the U.S. dollar index rose 0.07% to 101.85, and was eyeing a weekly gain of roughly 0.3%, after five straight weeks of losses. Rising expectations that the Fed will raise interest rates by 25 basis points in May have lent some support to the greenback, with money markets now pricing in a roughly 86% chance of such a hike next month. Meanwhile, rate cuts are being priced in as early as July through to the end of the year, with rates seen just above 4.5% in December. Against the dollar, the euro slipped 0.12% to $1.0958, while sterling fell 0.13% to $1.2428. However, the greenback's gains were capped after U.S. data released on Thursday added to growing recession fears.
The number of Americans filing new claims for unemployment benefits increased moderately last week, suggesting the labour market was gradually slowing. A separate report from the Philadelphia Fed showed its measure of factory activity in the mid-Atlantic region plunging to the lowest level in nearly three years in April. "The U.S. economy is heading to recession," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA). "We think (it will) be in recession probably around the middle of the year. "But the problem for the Fed is that inflation is still sticky at a higher rate, so we still think the Fed is going to increase interest rates at least once more." Flash PMI figures in the United States, along with the euro zone and the UK, are due later on Friday, which will provide further clarity on the overall global economic health. Japan's manufacturing activity shrank at the slowest pace in six months in April on a softer decline in sales, while the service-sector stayed solid, a preliminary survey showed on Friday, suggesting a patchy post-COVID economic recovery.
The mounting recession worries similarly put a lid on risk appetite, sending the risk-sensitive Australian dollar falling 0.48% to $0.6710, while the kiwi slid 0.36% to $0.6156.
Data out on Thursday showed that New Zealand's consumer price inflation was lower than expectations in the first quarter, though it remained near historic highs. Meanwhile, in Asia, Japan's elevated inflation figures kept alive market expectations that the BOJ could phase out its massive stimulus programme later this year, with all eyes now on next week's BOJ policy meeting, the first to be chaired by new central bank Governor Kazuo Ueda. "I don't think Ueda is going to change policy at his first meeting next week," said CBA's Capurso. "But there's been a few hints about a policy review, so that suggests to me that ... they'll move in the next few months."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Rae Wee; Editing by Jamie Freed and Kim Coghill)
