EUR/JPY declines below 162.00, Eurozone PMI declines unexpectedly
- EUR/JPY remains unchanged near 162.00 after the release of the weak flash Eurozone PMI data for May.
- Eurozone’s business sector activity declined unexpectedly due to weakness in the services sector.
- Investors await US-Japan trade talks, which are scheduled later this week.
The EUR/JPY pair trades 0.5% lower near 162.00 during European trading hours on Thursday. Investors brace for more weakness in the pair as preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data has surprisingly declined in May.
The report showed that the Composite PMI declined to 49.4. A figure below the 50.0 threshold is considered a contraction in the business activity. Economists expected the Composite PMI to come in higher at 50.7 from 50.4 in April. The notable decline in the Composite PMI came from contraction in activities in the services sector. The Services PMI surprisingly declined to 48.9.
According to the PMI report, the overall business activity in the Eurozone economy declined as Germany joined France in contraction territory.
Meanwhile, the Japanese Yen (JPY) outperforms across the board as mounting concerns over the United States' (US) fiscal imbalances have increased its safe-haven demand. Domestically, firm expectations of more interest rate hikes by the Bank of Japan (BoJ) have also kept the Yen on the frontfoot.
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.04% | -0.26% | 0.04% | -0.14% | 0.22% | 0.08% | |
| EUR | -0.16% | -0.12% | -0.42% | -0.12% | -0.30% | 0.06% | -0.07% | |
| GBP | -0.04% | 0.12% | -0.31% | 0.00% | -0.17% | 0.17% | 0.04% | |
| JPY | 0.26% | 0.42% | 0.31% | 0.29% | 0.13% | 0.46% | 0.32% | |
| CAD | -0.04% | 0.12% | -0.00% | -0.29% | -0.17% | 0.17% | 0.04% | |
| AUD | 0.14% | 0.30% | 0.17% | -0.13% | 0.17% | 0.36% | 0.21% | |
| NZD | -0.22% | -0.06% | -0.17% | -0.46% | -0.17% | -0.36% | -0.14% | |
| CHF | -0.08% | 0.07% | -0.04% | -0.32% | -0.04% | -0.21% | 0.14% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Earlier this week, BoJ Deputy Governor Shinichi Uchida expressed confidence that inflation in Japan will likely re-accelerate after a period of slowdown, a scenario that will keep hopes of interest rate hikes alive.
On the global front, investors await trade talks between Tokyo and Washington, which are scheduled over the weekend. Japan’s top trade negotiator Ryosei Akazawa is scheduled to visit Washington for trade discussions.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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