EUR/JPY draws some buyers above 160.50 ahead of Eurozone inflation data

VaselineOctober 1, 2024

0 2 minutes read

EUR/JPY draws some buyers above 160.50 ahead of Eurozone inflation data

EUR/JPY gains traction to around 160.70 in the first European session on Tuesday, up 0.49% on the day.
Ishiba’s comments undermine the Japanese yen.
The ECB’s Lagarde said she was increasingly confident that inflation would fall to the 2% target.

The EUR/JPY cross extends gains to near 160.70 during the European session on Tuesday. Comments from Japan’s new Prime Minister, Shigeru Ishiba, are weighing on the Japanese yen (JPY). Investors are looking to September’s Eurozone Harmonized Index of Consumer Prices (HICP) for further impetus. European Central Bank (ECB) policy makers Luis de Guindos and Isabel Schnabel are also due to speak later on Tuesday.

Conciliatory comments from incoming Japanese Prime Minister Shigeru Ishiba put some selling pressure on the JPY. Ishiba said the Bank of Japan’s (BoJ) monetary policy must remain accommodative to support a fragile economic recovery.

Elsewhere, Japan’s Tankan Large Manufacturing Index showed that general business conditions for large manufacturing companies remained steady in the third quarter (Q3) of 2024. The large manufacturer sentiment index reached 13.0 in Q3 from 13.0 in Q2, as expected.

On the euro front, weaker German CPI inflation data is triggering expectations of a 25 basis point (bps) cut at the ECB’s next policy meeting in October. This, in turn, could limit the upside for the single currency. ECB President Lagarde noted on Monday that the central bank is increasingly confident that inflation will fall to its 2% target and this will be reflected in its next policy move, hinting at yet another interest rate cut to come. Markets are raising their bets on a cut in borrowing costs at the October meeting after Lagarde’s speech.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy for the region. The ECB’s main mandate is to maintain price stability, which means keeping inflation at around 2%. Its main tool to achieve this is by raising or lowering interest rates. Relatively high interest rates will usually lead to a stronger 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 national banks in the euro area and six permanent members, including ECB President Christine Lagarde.

In extreme situations, the European Central Bank can implement a policy tool called Quantitative Easing. QE is the process by which the ECB prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually leads to a weaker euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis of 2009-11, in 2015 when inflation remained stubbornly low, and during the covid pandemic.

Quantitative tightening (QT) is the inverse of QE. It is undertaken after QE when an economic recovery is underway and inflation begins to rise. While in QE the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds and stops reinvesting the maturing principal in the bonds it already owns . It is usually positive (or bullish) for the euro.

VaselineOctober 1, 2024

0 2 minutes read

ECB FAQs

Vaseline

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