- EUR/JPY rises to a three-month high of 166.07 on Monday.
- The Japanese Yen received downward pressure as the loss of the LDP coalition increased uncertainty over the BoJ’s rate hike plans.
- The ECB’s Pierre Wunsch said there was no urgency for the central bank to cut interest rates quickly.
EUR/JPY is down around 165.50 during Asian trading hours on Tuesday, after hitting a three-month high of 166.07 on Monday. The Japanese Yen (JPY) has been under pressure due to growing uncertainty over the Bank of Japan’s (BoJ) rate hike plans, particularly after Japan’s Liberal Democratic Party (LDP) coalition lost its parliamentary majority. .
The Bank of Japan’s interest rate decision will be the focal point on Thursday, with nearly 86% of economists polled by Reuters expecting the central bank to maintain its current rates at the October meeting.
On Tuesday, Japan’s Finance Minister Katsunobu Kato stated that he is “closely watching currency market movements, including those driven by speculators, with increased vigilance,” but refrained from commenting on specific forex levels. Kato emphasized the importance of stable currency movements that reflect economic fundamentals.
Regarding the Euro, European Central Bank (ECB) policymakers have expressed divergent views on monetary policy in recent days. Pierre Wunsch, Governor of the National Bank of Belgium and member of the ECB’s Governing Council, declared on Monday that there is no urgency for the central bank to accelerate interest rate cuts, suggesting that it could even tolerate a modest rate.
In contrast, Mario Centeno, Governor of the Bank of Portugal, argued that a 50 basis point rate cut should be considered as a potential option for December. Meanwhile, Bank of Italy Governor Fabio Panetta expressed concerns about whether the ECB could stop rate cuts once it reaches a neutral level, where monetary policy no longer restrains growth.
Interest rates FAQs
Financial institutions charge interest rates on loans from borrowers and pay them as interest to savers and depositors. They are influenced by basic interest rates, which are set by central banks based on the evolution of the economy. Typically, central banks are mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
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.
