USD Index and Economic Data

The USD index declined by 0.41% to 103.97 on Friday afternoon, influenced by softer U.S. durable goods revisions and lower one- and five-year inflation expectations in the University of Michigan report. The upcoming holidays in the U.S. and UK on Monday likely exaggerated market moves as liquidity thinned after the London close.

EUR/USD Performance

EUR/USD climbed by 0.36% to 1.0854, buoyed by diminishing ECB rate cut expectations. Although a June ECB rate cut is still anticipated by over 80% of the market, the projected easing by year-end has decreased to 55 basis points from nearly 70 basis points last week. This shifting outlook supports EUR/USD, with next Friday’s May HICP inflation data being a key focus. A rise in services inflation above 4% could prompt the ECB to delay a June cut, which would be favorable for the euro.

Central Bank Policy and Economic Data Interplay

Looking ahead, the market's focus will remain on the interplay between economic data releases and central bank policy expectations. The softer durable goods data and reduced inflation expectations have eased some pressure on the Fed to maintain a hawkish stance, contributing to the dollar's decline. For the euro, the potential delay in ECB rate cuts, depending on upcoming inflation data, could continue to support EUR/USD.

USD/JPY Dynamics

In Japan, the USD/JPY pair is influenced by the significant interest rate differential between the U.S. and Japan. Despite slightly lower Japanese CPI figures, the risk for USD/JPY appears skewed to the upside. Traders remain cautious as the pair approaches the 160 level, wary of potential Japanese intervention.

GBP/USD Movements

GBP/USD moved higher, nearing Wednesday's high of 1.2761, supported by hotter-than-expected UK CPI data. This data has led traders to push back expectations for early BoE rate cuts to September-November from June-August. This adjustment has brought the 2024 high of 1.2894 into focus for bullish traders.

Cryptocurrency Market Trends

In the cryptocurrency market, Bitcoin rose by 1% to 68.5k, benefiting from a slight dip in U.S. Treasury yields. In contrast, Ethereum fell by 2% to $3,675 as traders booked profits ahead of the holiday weekend.

Outlook for Major Currencies

Overall, the outlook for major currencies remains closely tied to upcoming economic data and central bank policy signals. The dollar's direction will be influenced by further indications of U.S. economic strength or weakness, while the euro will be sensitive to inflation data that could alter ECB rate cut expectations. The yen is likely to remain under pressure due to the U.S.-Japan rate differential, with potential intervention as a looming risk. The pound's performance will hinge on further inflation data and BoE policy signals. Cryptocurrency markets, particularly Bitcoin and Ethereum, will continue to react to broader market sentiment and developments in U.S. Treasury yields.

In conclusion, as traders navigate these dynamics, the interplay between data releases and policy expectations will be crucial in determining currency movements in the near term.