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Dollar edges up vs yen, sterling drives higher

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The dollar was up around a third of a percent against the yen as markets listened to the Bank of Japan's latest comments on policy on Friday while sterling soared on the back of a surprise hint from the Bank of England that interest rates could rise this year.

The big action overnight was all on the pound. BoE Governor Mark Carney sent money market rates spinning higher by telling the annual Mansion House dinner that rates may rise sooner than markets currently expect.

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That sent sterling to a 19-month high against the euro and close to key resistance around $1.70, up around 1 percent since the close of play in London on Thursday.

The move was all the more shocking given how little faith the market has shown in sterling's ability to rise further against the dollar after a 10 percent rise in the past year. The currency has baulked so far this year at any attempt to breach $1.70 and some dealers said sellers had already appeared around $1.6980.

"The market is getting very ahead of itself we are very much in overshoot land," said one trader in London.

Most analysts and traders have continued to back sterling against the euro, however, which was worth less than 80 pence for the first time since November 2012 as European trade got going. Both the yen and the dollar looked supported going into the weekend given concerns over a conflict in Iraq that has prodded oil prices higher this week.

Slightly firmer U.S. bond yields helped the dollar recover from two-week lows against the yen. The Bank of Japan'sdecision to hold monetary policy steady underpinned the Japanese currency, though the outcome was widely expected and factored into positions.

The dollar added about 0.3 percent on the day to buy 102 yen, after dropping as low as 101.60 yen on Thursday. It rose to its session high of 101.83 yen before the BOJ outcome, and had little reaction the actual announcement. The euro also gained similarly to buy 138 yen.

Against the dollar, the euro was a touch higher near $1.36, having again resisted a push toward a four-month low of $1.3503 set last week after the European Central Bank unveiled a package of monetary easing, becoming the first major central bank to charge financial institutions for parking their funds with it.

--By Reuters. For more information on foreign exchange, please click here.

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