Most Asian currencies rose slightly on Friday, recovering further as the dollar weakened ahead of key jobs data, while the Japanese yen rose sharply on speculation of possible government intervention.
Elsewhere, the S&P 500 rose slightly on expectations that the Labour Party would win a landslide victory in the UK general election.
The dollar fell to a three-week low in thin holiday trading, while growing expectations of a rate cut also weighed on the greenback. Focus now turns to key data, due later on Friday, for further clues on interest rates.
Although a weaker dollar helped Asian markets, gains were limited as a potential escalation of tensions between China and Taiwan dampened sentiment.
Japanese Yen Rises Sharply, USD/JPY Drops on Intervention Talk
The Japanese yen was among the best performing currencies in Asia, with the pair, which measures the number of yen needed to buy one dollar, falling 0.4% to 160.63.
The sharp rise in the yen has sparked speculation that the Japanese government has intervened in currency markets to support the currency. The government had been expected to intervene during the July 4 holiday in the United States, taking advantage of low trading volumes.
The recent weakness in the yen has been driven by growing bets that the Bank of Japan will have limited room to tighten monetary policy further, amid continued weakness in the Japanese economy.
Weak May data on Friday reinforced that belief.
Chinese Yuan Steady as Taiwan Tensions Rise
The Chinese yuan lagged its peers, with the pair hovering around seven-month lows.
Sentiment towards China was further hurt by reports that Beijing had seized a Taiwanese fishing vessel and also deployed aircraft around the Taiwan Strait.
The reports come on the heels of an earlier report that Taiwanese companies are pulling staff out of China after Beijing imposed tough sanctions on supporters of Taiwan independence.
Any escalation in tensions with Taiwan would lead to greater scrutiny of China, attracting more sanctions from the West.
The Taiwan dollar pair fell by 0.2%.
Other Asian currencies were slightly higher as a U.S. market holiday kept trading signals low. The Australian dollar was up 0.1%.
The South Korean won fell 0.1%, while the Singapore dollar fell 0.1%.
The Indian Rupee pair fell slightly, but remained close to its recent record highs.