Dollar takes a breather; yen slips after BOJ

SINGAPORE, May 1 (Reuters) - The dollar sloughed off weak U.S. data to rise on Thursday as investors focused on signs the trade war may be cooling down, while the yen slid as Japan's central bank cut growth and inflation forecasts and hit pause on interest rates.

The yen fell around 0.5% to 143.73 per dollar. The hold on interest rates was unanimous and expected but investors saw the downgraded outlook as reducing the likelihood of future hikes.

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"It was nine to zero in terms of holding rates and, basically, to me it sounds like it's literally a holding pattern," said Bart Wakabayashi, branch manager at State Street in Tokyo.

"The uncertainty of the U.S. policies is causing everybody to just pause."

The Bank of Japan projected real GDP growth of 0.5% for the 2025-26 fiscal year, down from 1.1%.

The dollar has so far been one of the bigger casualties of the trade war as President Donald Trump's flip-flopping tariffs have hit growth expectations and rattled confidence, notching its largest monthly fall for 2-1/2 years through April.

But it has come off lows as Trump has suspended much of the hit and hinted at deals, including with China, which has the highest levies.

On Thursday that rebound extended, pushing the euro down about 0.2% to a two-week low of $1.13 and sterling about 0.2% weaker as well to $1.3294.

"We're in a window here where we're on a de-escalation path, and there are some de-escalation trades around it," said Richard Franulovich, Westpac's head of currency strategy in Sydney.

Trump said on Wednesday that he has "potential" trade deals with India, South Korea and Japan and that there is a very good chance of cutting a deal with China.

U.S. Trade Representative Jamieson Greer had said earlier on Wednesday that no official talks were happening with China.

A surge in imports to front-run tariffs dragged GDP into contraction mode in the first quarter, U.S. data showed overnight, though some economists took private demand holding up as a positive sign.

Jobless claims and the ISM manufacturing survey are due later on Thursday, though April jobs figures on Friday will be the next piece of hard data markets will use to gauge recession risks.

Expectations are for a slowdown in hiring to 130,000.

The Australian and New Zealand dollars stood steady against the dollar and are trading in the top half of recent channels.

The Aussie hovered at $0.6405 with some support as a very slightly hotter-than-expected inflation reading toned down some of the more dovish bets on the rates trajectory. The New Zealand dollar held its ground at $0.5940.

Reporting by Tom Westbrook; Editing by Stephen Coates, Jacqueline Wong and Shri Navaratnam

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