EUR/JPY pressured lower after slowing inflation weighs on single currency

  • EUR/JPY falls after the release of lower-than-expected Eurozone inflation data.
  • Slowing inflation suggests that the ECB will be more likely to cut interest rates, leading to capital outflows from the Euro.
  • Japanese Yen weakens after false rally after Ishiba victory as it takes an accommodative stance.

EUR/JPY is trading just over a third of a percentage point lower on Tuesday, in the 159.30 area. The pair falls after the release of Eurozone inflation data shows lower-than-expected inflation in the bloc, suggesting the European Central Bank (ECB) will be more likely to cut interest rates at future meetings. . This, in turn, will likely lead to capital outflows and a weaker Euro.

The Eurozone Harmonized Index of Consumer Prices (HICP) stood at 1.8% in September from 2.2% previously and 1.9% expected, according to Eurostat. The core HICP fell to 2.7% from the previous and expected 2.8%. The data supports comments from ECB President Christine Lagarde, who suggested inflation was returning to the central bank’s 2.0% target, as expected. “The latest developments reinforce our confidence that inflation will return to target in a timely manner,” he said on Monday.

EUR/JPY had been rising at the start of the week after Japan’s next prime minister, Shigeru Ishiba, unnerved markets that had expected him to take a neutral approach. The Yen rallied following news of Ishiba’s victory over rival Sanae Takaichi due to Takaichi’s explicit preference for a weak Yen to help Japanese exporters. However, on Monday Ishiba said monetary policy should remain accommodative (low interest rates) because economic conditions did not justify higher rates. His comments took investors by surprise and gave a boost to EUR/JPY.

Japan’s Jibun Manufacturing Purchasing Managers’ Index (PMI) showed a slight increase in manufacturing activity, rising to 49.7 in September according to data released on Tuesday during the Asian session, which was up from 49.6 in the previous month and the expectations of the same. The data, although still in contraction territory, may have put more pressure on EUR/JPY.

Source: Fx Street

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