EUR/JPY has increased to 156.65, showing a rise of 0.33% during early Asian trading. This uptick is bolstered by expectations for further interest rate hikes by the Bank of Japan and anticipation of Eurozone HICP and US ISM Manufacturing PMI data.
The Euro has seen buying interest following a proposal by France and the UK for a one-month truce in Ukraine. The preliminary reading for Eurozone HICP and US ISM Manufacturing PMI will be released on Monday.
Japan inflation and central bank moves
Recent data from Japan indicates solid economic growth and persistent inflation, supporting the notion of more interest rate increases from the BoJ. The Jibun Bank Japan Manufacturing PMI recorded a reading of 50.8, compared to a flash estimate of 48.9, marking the softest contraction in three months.
This increase in the pair reflects expectations that the Bank of Japan will keep tightening policy. Traders looking at derivatives must note that such moves are not coming out of nowhere. The market is reacting to fresh data that suggests inflation in Japan is stubbornly high, making rate hikes more likely.
On the European side, there has been a boost in sentiment surrounding the Euro. That buying interest is not just tied to economic data but also to recent geopolitical developments. France and the UK are making efforts towards temporary peace in Ukraine, which has added to confidence in European stability. Investors want certainty, and whenever there is even a slight reduction in geopolitical tension, demand for the Euro tends to rise.
Inflation reports and market impact
Looking ahead, there are two economic events that demand attention. The preliminary reading for the Eurozone’s Harmonised Index of Consumer Prices (HICP) and the US ISM Manufacturing PMI will be released soon. These are not minor reports. Inflation figures from Europe will guide expectations on whether the European Central Bank will adjust its monetary policy stance, while the US data will shape views on the Federal Reserve’s next steps.
Derivatives traders should be paying attention to Japan’s economic numbers as well. The Jibun Bank Japan Manufacturing PMI came in better than expected, jumping to 50.8 from a previously estimated 48.9. This suggests that Japanese manufacturing, which was looking weak, may be stabilising. A stronger economy gives the central bank more room to tighten policy further over time.
With all these factors at play, we must be prepared for potential volatility. Interest rate expectations are one of the major drivers of forex markets, so any surprises in inflation or manufacturing figures from the Eurozone, the US, or Japan could shift sentiment quickly.
