EUR/JPY continues drifting higher on wide interest-rate differential, lack of intervention

Source Fxstreet
  • EUR/JPY extends its uptrend as the Euro outperforms the Japanese Yen due to the higher interest rates in the Eurozone. 
  • After suspected direct intervention by the Japanese authorities to strengthen the Yen in early May there have been no follow ups. 
  • Weak data from Japan has lowered expectations the BoJ will be in a position to continue raising interest rates, further weakening JPY. 

EUR/JPY extends its uptrend on Monday, clocking up gains of over two-tenths of a percent to reach 169.50s, as the wide interest-rate differential between the Eurozone and Japan continues to favor the Euro (EUR) over the Japanese Yen (JPY) – relatively higher interest rates attract greater foreign capital inflows. 

Additionally, in the absence of recent direct intervention in currency markets by the Japanese authorities to strengthen the JPY, the pair has been allowed to creep higher. The last time a suspected intervention took place was in late April and early May when EUR/JPY experienced sharp declines for no apparent reason leading to unconfirmed speculations of intervention. 

The Bank of Japan’s (BoJ) decision to not repeat a reduction in its bond buying operations on May 17 despite doing so on May 13 further led the JPY to weaken. Reductions to bond buying are seen as a form of policy tightening – like raising interest rates – thus the decision not to go ahead was seen as a slight shift to an easier stance.  

A string of weak data releases in Japan, including a surprise 2.0% annualized drop in Q1 GDP, Tokyo CPI coming out lower than expected, and weak wage growth data in Q1 further suggest the BoJ will probably delay its next interest rate hike, after a one-off raise in March, giving EUR/JPY a back wind.

The Euro, meanwhile, is strengthening as positive data for the region suggests the European Central Bank (ECB) will not need to cut interest rates as quickly as previously thought, in order to stimulate economic growth. Q1 GDP data showed a 0.3% rise after two quarters of contraction and the strongest quarter of growth since Q3 of 2022. The Euro was also supported by relatively strong Eurozone PMI data for April. 

The ECB is widely expected to cut interest rates in June but recent comments from ECB board member Isabel Schnabel suggested the governing council might not follow up the cut in June with a cut in July. On Monday ECB policymaker Martin Kazaks gave the go ahead for rate cuts, saying inflation was gradually falling to the ECB’s 2.0% target, however, he added “the process (of cutting interest rates) needs to be gradual and we must not rush it.”

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Ethereum Drops Below $2,000 After Plunging Over 20% in a Month as Odds of $1,500 Retest SurgeEthereum Plunges Over 20% in a Month, Risking a Retest of $1,500 After Losing the $2,000 Defense Line.On November 13, Ethereum (ETH) plunged more than 5%, officially falling below the key
Author  TradingKey
8 hours ago
Ethereum Plunges Over 20% in a Month, Risking a Retest of $1,500 After Losing the $2,000 Defense Line.On November 13, Ethereum (ETH) plunged more than 5%, officially falling below the key
placeholder
Gold Price Forecast: Gold Tumbles Below $3,900 as Trump Says No Need for Iran Deal; Can October PPI Spur a Rebound? As of the Asian session on Friday (November 13), gold prices (XAUUSD) rebounded intraday following Thursday's sharp decline, trading near $3,910. Previously, gold tumbled 2.76% on Thursda
Author  TradingKey
11 hours ago
As of the Asian session on Friday (November 13), gold prices (XAUUSD) rebounded intraday following Thursday's sharp decline, trading near $3,910. Previously, gold tumbled 2.76% on Thursda
placeholder
Brent rose 3.3% and US crude stocks built 4.66 million barrels in the same weekBrent January settled at 95.82, up 3.3%, and WTI at 88.74, up 2.55%, after the US signalled it would not pursue a deal with Iran and attacks on Gulf shipping continued. In the same week, EIA data showed US crude inventories rising 4.657 million barrels against expectations of a 1.1 million draw, with gasoline up another 1.799 million. OPEC output also rebounded 1.96 million barrels a day to 27.16 million in October, led by Saudi Arabia at 10.56 million. This piece separates the geopolitical premium from the physical balance and lays out where each side of the trade is anchored.
Author  Irene Q.
14 hours ago
Brent January settled at 95.82, up 3.3%, and WTI at 88.74, up 2.55%, after the US signalled it would not pursue a deal with Iran and attacks on Gulf shipping continued. In the same week, EIA data showed US crude inventories rising 4.657 million barrels against expectations of a 1.1 million draw, with gasoline up another 1.799 million. OPEC output also rebounded 1.96 million barrels a day to 27.16 million in October, led by Saudi Arabia at 10.56 million. This piece separates the geopolitical premium from the physical balance and lays out where each side of the trade is anchored.
placeholder
Gold hit a one-year low while central banks bought 321 tonnes — the sellers were never the ones you thinkSpot gold closed at 3,876 on Thursday, down 2.8% and its lowest close in more than a year, with an intraday low near 3,852. The dollar is at a 19-month high of 103.21 and the 10-year yield is at 5.10%, so the price move is easy to explain. What is harder to explain is who sold: central banks bought 321 tonnes in Q3, the PBoC added for a 24th straight month, ETF holdings are near a record 4,256 tonnes, and roughly 95% of the futures selling came from non-reportable and sovereign-type accounts rather than hedge funds. This piece separates the two books that have to balance.
Author  Irene Q.
15 hours ago
Spot gold closed at 3,876 on Thursday, down 2.8% and its lowest close in more than a year, with an intraday low near 3,852. The dollar is at a 19-month high of 103.21 and the 10-year yield is at 5.10%, so the price move is easy to explain. What is harder to explain is who sold: central banks bought 321 tonnes in Q3, the PBoC added for a 24th straight month, ETF holdings are near a record 4,256 tonnes, and roughly 95% of the futures selling came from non-reportable and sovereign-type accounts rather than hedge funds. This piece separates the two books that have to balance.
placeholder
Today’s Market Recap: Nvidia Drops Over 4% After Jensen Huang Resigns, AMD and Broadcom Both Rise Over 5% On November 12, the three major U.S. stock indices closed slightly lower. Nvidia announced that Jensen Huang had stepped down immediately as CEO and director, draggi
Author  TradingKey
16 hours ago
On November 12, the three major U.S. stock indices closed slightly lower. Nvidia announced that Jensen Huang had stepped down immediately as CEO and director, draggi
Related Instrument
goTop
quote