The EUR/JPY pair rebounded from recent losses, trading around 159.10 during Tuesday’s Asian session, as the Japanese Yen (JPY) weakened amid improved market sentiment. Optimism surged following the postponement of US President Donald Trump’s reciprocal tariffs, boosting risk appetite.
BoJ Hawkishness Could Limit Gains
Despite the Yen’s current weakness, its downside may be limited as the Bank of Japan (BoJ) adopts a more hawkish stance. Japan’s latest Gross Domestic Product (GDP) report exceeded expectations, reinforcing speculation that the BoJ could tighten monetary policy further. Markets are now pricing in a 37-basis-point rate hike in 2025, pushing the yield on Japan’s 10-year government bonds to their highest levels since April 2010.
Euro Faces Pressure Amid ECB Rate Cut Expectations
On the European front, the Euro remains under pressure as several European Central Bank (ECB) officials continue to support expectations of three additional rate cuts this year. This follows last month’s 25-basis-point reduction, which brought the key rate down to 2.75%.
Geopolitical Developments Could Influence the Euro
A potential ceasefire in Ukraine and the resumption of gas supplies could provide support for the Euro. Analysts at JP Morgan suggest that the EUR/USD pair could gain up to 5% in such a scenario. Reports indicate that Trump and Russian President Vladimir Putin have agreed to start negotiations aimed at ending the conflict. Officials from the Trump administration are set to meet with Russian counterparts in Saudi Arabia on Tuesday to discuss a possible peace agreement.
Market Outlook
While EUR/JPY continues to appreciate on Yen weakness, the pair’s upside could face resistance if the BoJ maintains its hawkish trajectory. Meanwhile, the Euro’s movements will be closely tied to ECB policy decisions and geopolitical developments in Ukraine. Traders will monitor upcoming economic data and central bank signals for further direction.
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