Euro outperforms major currency peers as French bond yields cool down further

• Euro jumps to near 176.10 against the Japanese Yen amid relief in French bond yields.
• The appeal of French bonds improved after Moody’s maintained their Aa3 rating (negative outlook).
• Both the ECB and the BoJ are expected to leave interest rates unchanged this week.

The Euro (EUR) outperforms its major currency peers at the start of the week, trading 0.25% higher to near 176.10 against the Japanese Yen (JPY) during the European session. The major currency gains after underperforming in the past few weeks, getting relief from a further drop in French bond yields.

As of writing, 10-year French bond yields are down 0.5% to near 4.99% even after recovering a majority of their opening losses. Yields on 10-year French bonds have corrected 3% from their over two-decade high of 5.14% posted last week.

Euro and French bonds gain as Moody’s holds line on France

Analysts at Deutsche Bank highlight that France “got a boost on Friday night as Moody’s defied market expectations and maintained their Aa3 rating (negative outlook) on the sovereign.” They note that “the expected one-notch cut would only have taken it in line with S&P’s A+, so shouldn’t have been too destabilising,” but the decision to hold the rating still provided some relief at the margin. In immediate reaction, Deutsche Bank pointed out that “the Euro spiked a couple of tenths very late on Friday immediately after the news and is +0.13% higher this morning, with French bond futures rising nearly three-quarters of a point.”

This week, key triggers for the Euro and the Japanese Yen will be the monetary policy announcements by the European Central Bank (ECB) and the Bank of Japan (BoJ) on Thursday and Friday, respectively.

Markets eye unchanged rates before later hikes

Analysts at Danske Bank highlight that, for the remainder of the week, market attention will be firmly on upcoming policy meetings, as “focus turns to interest rate decisions from the ECB on Thursday and the Bank of Japan on Friday.” The bank notes that it “expects both to keep interest rates unchanged before resuming rate hikes later this year,” underscoring a near-term pause in policy tightening even as the broader narrative remains one of further increases ahead.

Later this week, investors will also focus on the preliminary German Harmonized Index of Consumer Prices (HICP) and Japan’s Tokyo Consumer Price Index (CPI) data for October.