The EUR/JPY currency pair gained traction on Thursday, recovering from a one-month low of approximately 155.45 reached the previous day. Despite this recovery, spot prices have retreated slightly from the day’s high and are currently trading around the 157.00 level. Market participants are closely watching the European Central Bank‘s (ECB) upcoming interest rate decision for further direction.
The ECB is anticipated to announce a 25 basis points rate cut at its September policy meeting, marking the second reduction in its current easing cycle. Investors are particularly focused on the updated economic projections and forward guidance. Additionally, comments from ECB President Christine Lagarde during the post-meeting press conference will likely impact the Euro and influence the short-term direction of the EUR/JPY pair.
Ahead of this critical central bank decision, a weaker-than-expected Producer Price Index (PPI) in Japan has dampened hawkish signals from the Bank of Japan (BoJ) and triggered some selling of the Japanese Yen (JPY). The headline PPI fell by 0.2% in August, and the annual rate slowed more than anticipated to 2.5% from 3.0% in July. Coupled with a generally positive sentiment in equity markets, this has diminished demand for the safe-haven JPY and supported the EUR/JPY cross.
However, comments from BoJ board member Naoki Tamura, who stated that the path to ending the easy policy remains lengthy, have reinforced expectations of potential further interest rate hikes by the BoJ later this year. This contrasts sharply with the ECB’s dovish stance, which could limit JPY losses. Therefore, it may be prudent to wait for a more definitive buying signal before concluding that the EUR/JPY cross has reached its bottom.
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