SYDNEY (Reuters) – Calm settled over Asian currency markets on Monday as Japan kicked off a week of holidays, giving investors an extra excuse to sit on their hands ahead of a Federal Reserve policy meeting and U.S. jobs numbers.

All eyes are on the Fed to see what they made of the first-quarter gross domestic product report, which showed strong growth of 3.2 percent, but largely for one-off reasons including a surge in inventories.

Core inflation, on the other hand, surprised by slowing sharply, leading speculators to actually narrow the odds on a rate cut this year. Fed fund futures now imply a rate of 2.20 percent by year end, from 2.41 percent now.

The March reading for core personal consumption expenditures (PCE), the Fed’s favored inflation measure, is due later Monday and there is a risk it might slow to 1.6 percent or even 1.5 percent.

“The single biggest macro issue at the moment concerns Fed policy and whether inflation is soft enough to justify an ‘insurance’ rate cut – or two,” said analysts at JPMorgan.

“Chicago Fed President Charles Evans has implied a sustained core PCE at 1.5 percent would justify “insurance” cuts even with growth staying healthy and investors will be listening very closely to (Fed Chair Jerome) Powell on Wednesday for any hints about his thoughts on this topic.”

It was this risk that saw the dollar fall back on Friday despite the upbeat GDP report. Against a basket of currencies, the dollar was last steady at 98.032, having eased from a near two-year peak of 98.330.

Yet the dollar is hardly alone given pretty much every other major central bank has also turned dovish in recent months, keeping their currencies subdued.

The Canadian dollar and Swedish crown, for instance, both took hits last week when their central banks put a halt on future rate hikes.

The European Central Bank is under pressure to keep its stimulus in place, if not to do a new rounds, while markets are pricing in rate cuts for Australia and New Zealand following weak inflation readings.

The Bank of Japan last week pledged to keep its policy super easy for at least another year, an effort to dispel talk it was wavering in its commitment.

While the yen gained at the end of last week, that was mainly because speculators chose to cut short positions ahead of this week’s extended Japanese holiday.

Some fear the lack of liquidity could lead to a re-run of the flash crash from January when the yen made massive gains in a matter of minutes as bears were stopped out.

On Monday, the dollar was idling at 111.59 yen, having briefly touched its highest this year last week around 112.39. Chart support comes in at 111.37 and 110.83.

The euro was likewise almost unchanged at $1.1149, not far from a near two-year trough of $1.1110.

A swatch of manufacturing surveys from Europe and China are due later this week, along with a first reading on EU GDP. The U.S. payrolls report on Friday is forecast to show an increase of 180,000 in April, with unemployment at 3.8 percent.

Chinese markets are also closed from Wednesday to Friday, which is expected to drain liquidity even more in Asia.

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