The EUR/JPY exchange rate rose to 161.65 during Monday’s Asian trading session, reflecting a 0.22% increase for the day. The Japanese Yen is under pressure amid expectations that the Bank of Japan (BoJ) will maintain its current interest rates at the upcoming policy meeting set for December. In contrast, political developments in France have bolstered the EURO ’s position, although the European Central Bank (ECB) appears geared towards a more dovish stance that may limit the EURO ’s gains.
During the early European trading hours, the EUR/JPY pair continued to gain momentum, driven by the declining strength of the Yen. The market has assigned a low probability, less than 30%, for a rate hike by the BoJ in December, following insights from policymakers who seem hesitant to adjust monetary policy in light of tepid inflation levels. This cautious stance from the BoJ has contributed to a weaker Yen, thus providing support for the EURO ’s ascent against it.
Adding to the EURO ’s strength, recent political changes in France have instilled hope for greater political stability after President Emmanuel Macron appointed François Bayrou as the new Prime Minister. This development has fostered optimism, lending a modicum of support to the EURO . Nonetheless, the EURO ’s upward momentum could face challenges, particularly as the ECB may be preparing for potential rate cuts in the near future.
Following a recent reduction in interest rates by the ECB to 3.0%, there are concerns regarding slower economic growth than previously anticipated. Market participants are bracing for additional cuts, with forecasts suggesting that the ECB may implement up to five incremental reductions by next September, potentially lowering the deposit rate to 1.75%. This prospect of further easing could constrain the EURO ’s upward trajectory as investors weigh the implications of these monetary policy shifts.
