The EUR/JPY currency pair rose to approximately 161.65 during the early European session on Monday, gaining momentum as the Japanese Yen (JPY) weakened. This shift comes amid growing speculation that the Bank of Japan (BoJ) will maintain its interest rates during its upcoming meeting on Thursday, December 21.
The BoJ is set to conclude its final policy meeting of 2024 on December 18-19, with market expectations indicating less than a 30% chance of a rate hike. Despite Japan’s persistently low borrowing costs, several BoJ policymakers have expressed hesitance to tighten monetary policy further, citing minimal inflationary pressures. This outlook has exerted selling pressure on the Yen, providing support for the EUR/JPY pair.
Meanwhile, market participants are awaiting the release of the Eurozone’s preliminary December Purchasing Managers’ Index (PMI) later today, as well as a speech by European Central Bank (ECB) President Christine Lagarde. The data could offer further insight into the economic outlook for the region.
On the political front, the EUR received some support after French President Emmanuel Macron appointed François Bayrou, a centrist ally, as the new prime minister on Friday. The move is expected to foster political stability in France, bolstering confidence in the Euro. However, the single currency’s gains may be limited by ongoing concerns over the ECB’s monetary policy.
The ECB recently cut interest rates by 25 basis points to 3.0% and signaled a weaker growth forecast. Market analysts expect additional rate cuts, with swaps markets pricing in five more 25 basis point reductions by September 2024, potentially bringing the deposit rate down to 1.75%.
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