The Euro (EUR) is slowly recovering from early losses against the Japanese Yen (JPY) during Tuesday’s European trading session. As it stands, EUR/JPY has dipped by 0.3% to approximately 178.85 after previously hitting a low of 177.85.
Despite the recent recovery, the general outlook for this currency pair seems bearish. Market analysts anticipate a strong future for the Yen, especially since they believe the Bank of Japan (BoJ) will likely continue its cycle of monetary tightening, even after the expected interest rate hike in the upcoming policy meeting.
Growing Support for the Yen Amid Anticipated BoJ Adjustments
Commerzbank analysts have pointed out that there’s a nearly 96% probability of an interest rate hike next week, and they foresee more hikes happening shortly after. This rapid shift in expectations has caught everyone’s attention.
They suggest that as long as these hawkish expectations persist, the Yen should appreciate further, benefitting from this aggressive policy stance.
On the other side, all eyes are on the European Central Bank’s (ECB) decision regarding interest rates, set for Thursday. While many experts believe that a rate hike is likely, some caution that slower economic growth in the Eurozone, coupled with increased energy prices, might complicate the central bank’s approach to monetary policy.
According to ABN Amro, the situation for the ECB seems straightforward for the moment, with a rate increase at next Thursday’s Governing Council meeting already reflected in market pricing. Yet, the road ahead is less certain, with expectations that the ECB might keep rates steady for the rest of the year, and possibly cut them in the second or third quarter of the next year.
OCBC strategists also noted that rising energy prices complicate the ECB’s outlook, warning that inflation risks are growing less manageable in an environment of moderate economic growth.
