The EUR/JPY cross saw some selling pressure around 159.50 during the early European session on Wednesday, as the Japanese Yen (JPY) gained strength against the Euro (EUR). The Yen’s gains were driven by stronger-than-expected data from Japan’s Producer Price Index (PPI) for November, while attention turns to the European Central Bank’s (ECB) upcoming interest rate decision on Thursday.
The preliminary reading from the Bank of Japan (BoJ) on Wednesday revealed that Japan’s PPI rose by 0.3% month-over-month in November, surpassing the expected 0.2% increase. On a year-over-year basis, the PPI increased by 3.7%, also above the market consensus of 3.4%. This stronger-than-expected PPI data bolstered the Yen, adding pressure to the EUR/JPY pair.
ECB Rate Cut Expectations Weigh on Euro
Meanwhile, the Euro faces headwinds from growing expectations that the ECB will implement further rate cuts in an effort to stimulate the Eurozone economy. The central bank is widely anticipated to lower the deposit facility rate by 0.25% to 3.00% in its meeting on Thursday, following the ECB’s strategy to guide inflation back toward its 2% target amid slowing economic growth in the region.
These dovish expectations for the ECB could weigh on the Euro, limiting the upside potential for EUR/JPY, and contributing to the selling pressure on the currency pair.
BoJ’s Cautious Stance on Rate Hikes Caps JPY Strength
Despite the stronger-than-expected PPI data, the Japanese Yen’s gains may be capped by dovish remarks from BoJ officials. BoJ board member Toyoaki Nakamura recently emphasized the need for caution in raising interest rates, fueling uncertainty about the timing and extent of the BoJ’s policy tightening. This uncertainty surrounding the BoJ’s December policy decision could undermine the Yen and limit the downside for the EUR/JPY pair.
As market participants await the ECB’s decision and any further guidance from the BoJ, the EUR/JPY pair is likely to remain sensitive to shifts in sentiment toward both central banks.
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