eur/jpy

The EUR/JPY pair is currently consolidating within a narrow range of 156.60 and 156.20 as the European session approaches. The Bank of Japan (BoJ) has maintained its ultra-dovish policy stance, while the European Central Bank (ECB) is expected to raise interest rates by 25 basis points (bps) to 4% in its upcoming meeting.

The Eurozone Core Harmonized Index of Consumer Prices (HICP) for June showed a final reading of a 0.4% month-on-month increase, surpassing the previous figure of 0.3% and exceeding market expectations. The next ECB meeting has already factored in a 25 bps interest rate hike, with a 65% chance of a hike in September.

On the other hand, Japan’s trade balance brought a positive surprise with its first surplus since July 2021, relieving some pressure on the country’s economic recovery. The trade surplus amounted to ¥43 billion, which was slightly lower than the market consensus of a ¥46.7 billion deficit. Notably, exports increased by 1.5%, while imports decreased by 12.9%.

BOJ Governor Kazuo Ueda mentioned on Tuesday that the 2% inflation target was still some distance away, as reported by Reuters.

It is important to consider that the ongoing trade tensions between the US and China might limit the Euro’s potential upside and bolster demand for the safe-haven Japanese Yen (JPY). Market participants will closely monitor developments in Sino-US relations for further market direction.

Looking ahead, market participants will be attentive to the Bank of Japan’s (BoJ) interest rate decision, scheduled for next week. BoJ Governor Kazuo Ueda is expected to maintain a dovish policy stance to stabilize inflation around 2%. Additionally, the French and German Purchasing Managers’ Index (PMI) and the Monetary Policy Statement are due for release later next week.

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