Forex Today: Market sentiment improves; Ueda's first BOJ meeting

The Bank of Japan (BOJ) on Friday kept ultra-low interest rates but announced a broad review of its monetary policy, laying the groundwork for new Governor Kazuo Ueda to gradually phase out his predecessor's massive stimulus programme. In addition, Australia will release its report on wholesale inflation, and Japan will publish several reports. Later in the day, the focus will shift to the Eurozone, where GDP and inflation figures will be released.

Here is what you need to know on Friday, May 5:

On Thursday, Wall Street had its best day in a week, with the Dow Jones gaining 1.57% and the Nasdaq 2.43% boosted by earnings reports. Meta Platforms surprised and jumped almost 14% on Thursday. More earnings are coming on Friday from companies such as Exxon Mobil, Chevron, PetroChina, China Construction Bank, Sony and Mercedes-Benz.

The improvement in market sentiment favored currencies like AUD, NZD and CAD, while weakening CHF, JPY and the US Dollar. US yields rose sharply, driven more by risk sentiment than by monetary policy expectations.

US real GDP increased by 1.1% during the first quarter, below the 2% of markets consensus. On the positive side, Jobless Claims dropped more than expected. Pending Home Sales tumbled 5.2% in March. On Friday, the US will report Feds preferred inflation measure: the Core Personal Consumption Expenditures Price Index.

We continue to forecast that the U.S. economy to slip into recession, which we expect will be of moderate severity, in the second half of the year.

The Japanese Yen was among the worst performers on Thursday amid higher yields. USD/JPY rose to 134.15 and then pulled back.

The Bank of Japan (BoJ) will announce its monetary policy decision, the first under Kazuo Ueda. No change is expected; however, comments or signs about the future path can have a significant impact. The BoJ will release new macro forecasts. Japan will report Unemployment, Tokyo inflation, Retail Trade, Industrial Production and Housing Starts.

Bank of Japan Preview: New governor but old policy

EUR/USD fell modestly on Thursday, closing above 1.1000. The trend is up but gains remain limited by 1.1050. On Friday, Spain, France and Germany will release inflation figures (April preliminary) and also Eurozone growth numbers are due. Those reports are critical ahead of next weeks European Central Bank (ECB) meeting, which is seen rising rates by 25 basis points, but a 50 bps is not ruled out.

GBP/USD rose for the second day, staying below the recent high and slightly below 1.2500. The Pound outperformed on Thursday with EUR/GBP having the biggest daily loss in a month, falling from 0.8875 to 0.8825.

USD/CAD had the worst day in two weeks, pulling back under 1.3600 on risk sentiment and steady crude oil prices. Canada will report monthly GDP growth, with the economy expected to have expanded at a 0.2% rate in February and flash estimates for March are expected to show slowing activity.

NZD/USD advanced, finding resistance around the 200-day Simple Moving Average at 0.6160. AUD/USD also recovered after being able to defend 0.6600. Both pairs are moving with a bearish bias. Australia will report Q1 Producer Price Index (PPI) on Friday.

The Central Bank of the Republic of Turkey (CBRT) kept the policy rate unchanged at 8.5%, as expected, ahead of May 14 elections. USD/TRY posted a new record high close above 19.43.

The Colombian peso is the worst performer so far this week as political risk picked up in Colombia. President Petro ousted a moderate finance minister, replacing him with a key leftist ally, raising concerns about the economic policies from now on. USD/COP rose to 4,670, the highest level in four weeks. If the depreciation of the Peso continues it could force the central bank to raise rates further.

Crude oil prices recovered moderately after days of sharp declines, closing the gap created after the OPEC+ production cut announcement at the beginning of April. WTI surpassed $75.00 but failed to hold above. Crude remains under pressure, even amid larger inventory draws, reflecting concerns about the global economic outlook.

Gold and Silver continued to move sideways, ending unchanged at $1,987 and $24.90, respectively.