Euro Retreats from Gains as Middle East Tensions Weigh on Markets

The Euro has retreated from its earlier gains against the Japanese Yen on Wednesday, weighed down by growing tensions in the Middle East and a risk-off market mood.

Despite hot German inflation figures released earlier in the day, which showed a 2.8% year-over-year increase in July's Harmonised Index of Consumer Prices (HICP), the EUR/JPY pair failed to hold above 184.00 and retreated to 1.8315 lows before rebounding to the 183.50 area.

The German inflation data, which included a sharp jump in energy prices to 7.3% year-over-year, had fueled hopes for an interest rate hike by the European Central Bank (ECB) in September. However, the impact on the Euro has been minimal so far.

In contrast, the Yen is trimming losses across the board on Wednesday, following a hawkishly leaning Summary of Opinions from the Bank of Japan (BoJ) earlier in the week. Analysts at DBS Group Research noted that there are 'growing reasons for the BoJ to bring forward its tightening cycle,' citing firm wage-driven reflation and strengthening CPI as key supports for earlier action.