Although not on the scale seen on Thursday, the yen was subjected to renewed volatility during Friday as the dollar dipped sharply to lows near 101.0 from a peak above 102.50. The moves helped maintain an elevated mood of uncertainty across all forex pairs.
The Euro was boosted by two positive economic reports during the European session. The German consumer confidence index strengthened to 6.5 for May from 6.2 previously, the highest reading for over five years, which boosting confidence surrounding the spending outlook.
Following two monthly declines, the closely-watched IFO business confidence index strengthened to 105.7 in the latest release from 104.4 previously. IFO economists were more confident surrounding the outlook with reports that exports were performing strongly. In response to the economic data, EUR/USD pushed firmly higher with a move to test key resistance in the 1.30 area.
Developments within the peripheral bond markets were less encouraging during the day. Following reduced demand at the latest bill auction on Thursday, there was a further increase in Spanish benchmark bond yields on Friday. There was also an increase in Italian benchmark yields of over 10 basis points with unease over the implications of rising bad debts within the banking sector.
The US economic data was better than expected with a headline increase in durable goods orders of 3.3% following a revised 5.9% decline the previous month. The data is prone to high volatility on a monthly basis, but core orders also increased following two monthly declines which helped underpin US economic confidence.
The Euro failed to break resistance in the 1.30 area and retreated to lows just above the 1.29 level following the US releases. Sterling was broadly sidelined by a lack of fresh data as it held above 1.50 against the dollar, but failed to break above resistance in the 1.5150 area.
Markets continued to struggle with US Federal Reserve rhetoric following the barrage of comments and testimony from officials this week. Regional Fed President Bullard did little to ease the confusion and uncertainty as he stated that he wanted higher inflation before shifting towards a tapering of bond purchases.
The net consensus of views is broadly that the Fed will reflect on the economic trends over the next 2-3 months before taking any decision. This will leave markets back in the familiar pattern of monitoring incoming labour-market reports for evidence on economic direction.
The environment of uncertainty and position squaring ahead of the long weekend in both the US and UK prevented the dollar from gaining any additional traction as EUR/USD consolidated above 1.29.