- EUR/JPY gains traction around 167.20 in early European trading on Tuesday.
- Eurozone/Germany advanced gross domestic product (GDP) will be closely watched later on Tuesday.
- The BoJ is expected to raise interest rates by 10 basis points at its next meeting on Wednesday.
The EUR/JPY pair regains some lost ground near 167.20 during the European session on Tuesday. The Japanese Yen (JPY) extends its decline for the second consecutive day, providing some support to the pair. Traders will be keeping an eye on the release of the second quarter (Q2) Gross Domestic Product (GDP) from the Eurozone and Germany on Tuesday. On Wednesday, all eyes will be on the Bank of Japan (BoJ) monetary policy meeting.
Weaker German IFO survey results and softer Eurozone economic data last week fuelled speculation of another rate cut by the European Central Bank (ECB). ECB President Christine Lagarde stressed during her latest press conference that the central bank will maintain a data-dependent approach, with the September rate cut still undecided.
Traders will take further cues from GDP growth figures later in the day, which could provide crucial information for the ECB as officials look for signals on whether to resume interest rate cuts in September. The German economy is estimated to grow 0.1% qoq in Q2, while the Eurozone economy is projected to expand 0.2% qoq in the same reporting period. In the event of stronger-than-expected readings, this could boost the shared currency against the JPY.
On the other hand, growing speculation that the BoJ would hike rates on Wednesday could boost the JPY and limit the cross’s upside. A Reuters poll of economists expects the Japanese central bank to raise rates by 10 basis points (bps) to 0.1% at its next meeting in July.
On the other hand, data released by Japan’s Statistics Bureau showed that the country’s unemployment rate fell to 2.5% in June from 2.6% in May. This figure registered the first improvement in five months and exceeded the market consensus of 2.6%.
Euro FAQs
The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can 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 can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.
Another important output 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 during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
