The EUR/JPY cross maintained its upward trajectory, trading near 173.80 early in the European session on Wednesday, marking its sixth consecutive day in positive territory. The Japanese Yen (JPY) weakened following data revealing a contraction in Japanese business activity for June.
Japan’s Services PMI final reading for June fell to 49.4 from May’s 49.8, indicating the largest decline since January 2022. This significant drop, among the sharpest on record, exerted selling pressure on the JPY and acted as a restraining factor for the currency pair. However, there is speculation that potential intervention by the Bank of Japan (BoJ) in the foreign exchange markets could support the JPY in the near term.
Conversely, on the Euro side, the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) inflation eased slightly to 2.5% year-on-year in June from 2.6% in May. Despite this moderation, analysts from ING noted that these figures were unlikely to prompt the European Central Bank (ECB) to consider further interest rate cuts at its upcoming policy meeting on 18 July.
Bert Colijn, senior eurozone economist at ING, commented, “Nothing in these figures would make the ECB cut again in July, and we think it’ll be eagerly awaiting data over the summer before seriously debating a next rate cut in September.”
Earlier remarks from ECB President Christine Lagarde indicated a similar stance, suggesting that immediate rate cuts are not warranted based on recent economic developments. This divergence in monetary policy outlooks between the Eurozone and Japan continues to bolster the Euro’s strength against the Yen in the current market environment.
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