EUR/JPY Attracts Some Sellers Below 170.50 As Expectations Of A Bank Of Japan Rate Hike Grow

The EUR/JPY cross faced some selling pressure around 170.25 during early European trading on Monday. The higher probability of a rate hike by the Bank of Japan (BOJ) at its July monetary policy meeting provided some support to the Japanese yen (JPY). Traders will take further cues from the Eurozone’s preliminary July Purchasing Managers’ Index (PMI) on Wednesday and Tokyo’s Consumer Price Index (CPI) on Friday.

Japan’s core inflation rose for a second straight month in June, fueling market expectations for a near-term rate hike by the Bank of Japan. Bank of Japan Governor Kazuo Uedastated that the central bank would push rates higher if rising wages and service prices improve the prospects of achieving its 2% inflation target on a lasting basis. Nevertheless, more than three-quarters of economists in a Reuters poll expect the Bank of Japan to remain on hold this month due to sluggish consumption and a fragile economy.

In addition, hedge funds reduced their bets on the yen after Japanese authorities appeared to have taken a double market intervention to support the currency, The Japan Times reported. Concerns that Japanese officials may further intervene in the foreign exchange market may boost the yen in the short term.

On the other hand, the European Central Bank (ECB)’s cautious approach to interest rates may limit the downside of the euro (EUR). The ECB has emphasized a data-dependent approach, making the timing of rate cuts uncertain. The ECB’s cautious stance highlights the geopolitical risks and political uncertainties that require vigilance and adaptability.

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