The EUR/JPY currency pair pulled back from recent gains, trading around 163.35 during the early European hours on Wednesday. The Euro (EUR) faced some selling pressure following disappointing economic data from Germany, though the downside for the pair appeared limited due to ongoing uncertainty surrounding the Bank of Japan’s (BoJ) monetary policy outlook.
Germany’s Factory Orders unexpectedly dropped in November, highlighting ongoing challenges in the industrial sector just weeks before Chancellor Olaf Scholz faces elections. According to data from the Federal Statistics Office, German Factory Orders plunged by 5.4% month-on-month in November, a sharp decline compared to the 1.5% fall reported previously. The reading also fell well below the expected 0% change, sending the Euro lower against the Japanese Yen (JPY) in an immediate response to the weak data.
The pair’s decline was also influenced by broader market factors, including verbal interventions from Japanese authorities and a risk-off sentiment driven by geopolitical uncertainties in the Middle East. These developments tend to bolster safe-haven currencies like the JPY, providing additional headwinds for EUR/JPY.
However, the Japanese Yen’s strength may be limited by ongoing uncertainty regarding the BoJ’s future policy moves. Despite Japan’s relatively weak economic recovery, BoJ Governor Kazuo Ueda indicated on Monday that the central bank could consider raising interest rates to adjust the pace of monetary easing if economic and price conditions continue to improve. This stance keeps market participants cautious, preventing a significant strengthening of the JPY for now.
As the EUR/JPY pair grapples with these mixed influences, traders will remain focused on any further signals regarding the BoJ’s monetary policy and geopolitical developments that could sway the safe-haven demand for the Yen.
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