The EUR/JPY pair experienced a significant rally on Monday, climbing over half a percent to the 165.60s. This surge was primarily driven by a stronger Euro (EUR) following the upward revision to the final estimate for April’s Eurozone Services PMI.
According to data from S&P Global and Hamburg Commercial Bank (HCOB), Eurozone HCOB Services PMI for April was revised up to 53.3 from a preliminary estimate of 59.9. This revision was significantly higher than the 51.5 recorded in March. Additionally, the Eurozone Composite PMI was revised up to 51.3 from a preliminary estimate of 49.9.
“The euro area’s economic recovery progressed further at the start of the second quarter, as overall business activity growth accelerated to an 11-month high,” stated the report from S&P Global HCOB.
In contrast, the Japanese Yen weakened in most of its major pairs, potentially due to comments from US Treasury Secretary Janet Yellen over the weekend. Yellen’s remarks, which could be interpreted as mildly critical of intervention, may have contributed to the Yen’s decline.
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Despite Yellen refusing to confirm whether direct currency intervention was behind the Yen’s recovery last week, including a more than two percent rise against the Euro, she did mention, “we would expect these interventions to be rare and consultation to take place.”
The upside for EUR/JPY is expected to be limited by growing expectations that the European Central Bank (ECB) will cut interest rates at its June meeting. This sentiment was reinforced by comments from the ECB’s Chief Economist Philip Lane, who noted that inflation was decreasing in a “timely manner.”
Lane stated, “Both the April flash estimate for euro area inflation and the Q1 GDP number that came out improve my confidence that inflation should return to target in a timely manner,”
adding, “So, as of today, my personal confidence level has improved compared with our April meeting. But of course, more data will arrive between now and June.”
Lane emphasized that the final decision on when the ECB would cut interest rates would depend on a “month-by-month” assessment of the data, noting that not all relevant metrics had been collected. A potential rate cut by the ECB in June could weigh on the Euro, as lower interest rates typically attract fewer capital inflows.
Meanwhile, Eurozone factory gate prices, which are often seen as a precursor to broader price trends, continued to decline according to data from Eurostat. The Eurozone Producer Price Index (PPI) fell by 0.4% in March, which was less than the forecasted 0.7% decrease. On a year-over-year basis, PPI fell by 7.8% in March compared to 8.5% in February.