Inflation Next, Yen Crosses & Make a Move

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GBP/JPY is flirting with the 2018 high after a strong climb on Thursday. If it can breach that level, the pair would touch the highest since July 2016.

GBP/JPY steadily climbed alongside stocks from late 2020 through February but has largely consolidated since. It has now broken out this month and and that's a positive sign for it and correlated risk trades.

EUR/JPY also made a move on Thursday to the highest since Feb 2018 and has risen in four of the past five weeks as Europe emerges from the pandemic much faster than Japan, which is struggling with vaccinations.

Even CHF/JPY is surging and that price action indicates that the yen is quickly reassuming its traditional spot as the funding currency. At the same time, we can't rule out that dollar liquidity issues and month end are exaggerating this move.

US economic data offered little market direction but was indicative of an economy that continues to recover. Initial jobless claims fell to 406K from 425K expected and will continue to fall in the weeks ahead as states cut extra aid programs. Core durable goods orders were also strong, rising 2.3% compared to 1.0% expected. Finally, the second look at Q1 GDP was in line with the +6.4% consensus but the underlying numbers were a reminder that inventory rebuilding will be an ongoing tailwind.

Data will certainly be in focus on Friday, with the US PCE report out at 1230 GMT. The Fed's preferred measure of inflation – PCE core – is forecast to jump to 2.9% from 1.8% and if it does, that will be the highest since 1994 in something that's sure to drive headlines. However so long as it's near consensus, the market will shrug that off. Moreover, we've highlighted how high prints have led to USD spikes that are faded in the following days.

Note that Monday is a holiday in the US and that markets will thin out early ahead of the long weekend.