- EUR/JPY found support at a low of 154.84 and then stabilised near 156.90 holding to mild gains.
- German yields are declining following ECB speakers.
- Focus shift to ECB and BoJ decisions next week.
The EUR/JPY regained momentum during the American Session and jumped back towards 155.90 from a low of 154.84. On the downside, lower German yields limit the Euro’s upside potential, while the JPY seems to be struggling to gain momentum due to the Bank of Japan's (BoJ) expectations to maintain its dovish stance next week.
European Central Bank (ECB) officials delivered mixed signals regarding the next monetary policy moves past July. Klaas Knot argued that hikes beyond July are possible but not a “certainty” as he stated that the bank must carefully rely on the upcoming data. In addition, Nagel argued, “We will see, the data will tell us” regarding the September decision. According to the World Interest Rates Probabilities (WIRP), a 25 basis point (bps) hike is already priced in for next week’s meeting and the odds of a hike stand at nearly 60% for the September meeting and at 80% for the December meeting.
That being said, German yields have significantly decreased across the board on Tuesday. The 2-year yield dropped to 3.22% while the 5 and 10-year rates to 2.52% and 2.36%, respectively, seeing more than 3% declines. In that sense, lower yields are not allowing the Euro to gain traction.
On the Japanese front, BoJ’s Governor, Kazuo Ueda, is expected to maintain a dovish stance in the next week’s central bank meeting and maintain steady its inflation forecast. In the meantime, the JPY seems to weaken on monetary policy divergences agains its major rivals
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